Sinostar PEC Holdings Limited

Sinostar PEC Holdings Limited

Sinostar PEC H

oldings Limited 2011 A

nnual Report

2011

Annual Report

27 Huanghe Road, Dongming CountyShandong Province, PRC 274500

Tel: (86) 530 6259492Fax: (86) 530 7286492

www.sinostar-pec.com

Designed and produced by

(65) 6578 6522

WE ARE SINOSTAR PEC HOLDINGS LIMITED

With a comprehensive production process and the right infrastructure to carry out seamless operations,

we have been successful in being a trusted producer and supplier of oil and petrochemical products in our network in the PRC, serving growth markets in strategic proximity to our nationwide footprint.

CORPORATE INFORMATION

Board of DirectorsLi Xiang Ping (Non-Executive Chairman)Fan Deng Chao (Chief Executive Officer and Executive Director)Zhang Liu Cheng (Executive Director)Lee Gee Aik (Independent Non-Executive Director)Teo Moh Gin (Independent Non-Executive Director)Wu Guozhi (Non-executive Director)

Audit CommitteeLee Gee Aik (Chairman)Teo Moh GinLi Xiang Ping

Remuneration CommitteeTeo Moh Gin (Chairman)Lee Gee AikLi Xiang Ping

Nominating CommitteeLee Gee Aik (Chairman)Teo Moh GinLi Xiang Ping

SecretaryTan Wei Shyan, LLB

Company Registration Number200609833N

Registered Office1 Robinson Road,#17-00 AIA TowerSingapore 048542

Principal Place of Business27 Huanghe Road, Dongming CountyShandong Province, PRC 274500Tel: (86) 530 6259492Fax: (86) 530 7286492

Share RegistrarM & C Services Private Limited138 Robinson Road#17-00, The Corporate OfficeSingapore 068906

AuditorFoo Kon Tan Grant Thornton, LLP47 Hill Street, #05-01Singapore Chinese Chamber of Commerce &Industry BuildingSingapore 179365(Partner-in-charge: Tei Tong Huatappointed since FY2011)

Legal Advisers to the Company on PRC LawQindao Law Firm22F, Northern Tower, Golden Square20 Hong Kong Road(M), Qingdao CityShandong ProvincePRC 266071

Principal BankersChina Construction BankDongming BranchNo. 10, Jie Fang RoadDongming County, Shandong ProvincePRC 274500

Bank of ChinaDongming BranchWusi Road East WingDongming County, Shandong ProvincePRC 274500

Agricultural Bank of ChinaDongming BranchNo. 165, Xiang Yang RoadDongming County, Shandong ProvincePRC 274500

Industrial and Commercial Bank of ChinaDongming BranchNo. 50, Jie Fang RoadDongming County, Shandong ProvincePRC 274500

China Industrial BankJinan BranchNo. 71, Jinan Jingshi RoadJinan, Shandong Province, PRC

Oversea-Chinese Banking Corporation LimitedOCBC Centre65 Chulia St #01-00Singapore 049513

The Hongkong and Shanghai Banking Corporation Limited21 Collyer Quay#08-01 HSBC BuildingSingapore 049320

SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 1

SINOSTAR PEC AT A GLANCE

CONTENTS2 Sinostar PEC at a Glance

10 Letter to Shareholders18 Operations Review20 Board of Directors22 Key Management24 Financial Highlights25 Corporate Governance Report39 Financial Contents80 Statistics of Shareholdings82 Notice of Annual General Meeting

Proxy FormCorporate Information

2 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011


PEOPLE’S REPUBLIC OF CHINA

ABOUT SINOSTAR PEC HOLDINGS LIMITED

We are one of the largest producers and suppliers of oil and petrochemical products within 400km radius of our production facilities within the Dongming Petrochem

Industrial Zone in Dongming County of Shandong Province, PRC.

Situated within the Zhongyuan Oilfield—one of PRC’s largest oilfi elds, rich in energy resources and linked by a comprehensive logistics network, our strategic location allows us to reach out to the nearby populous and industrialised provinces such as Shandong, Henan, Anhui, Jiangsu, Shaanxi, Hebei and Zhejiang.

Hebei

Anhui

Shanxi

Henan Hubei Zhejiang

Shandong



We aim to be more than an experienced producer of oil and petrochemical goods. We aim to be a committed supplier of product quality, prompt delivery and good customer service.

Our Corporate Structure

Our Group comprises Sinostar PEC Holdings Limited and our PRC subsidiary, Dongming Hengchang. In June 2008, through our subsidiary,

we incorporated another subsidiary, Dongming Runchang Petrochemical Co., Ltd., in a joint venture with Dongming Petrochem Holdings Group (previously owned by Dongming Zhongyou Fuel and Petrochemical Company Limited’s subsidiary), Dongming Runbang Petrochemical Co., Ltd.

Prioritising Quality

We have attained 3 major international standards in the areas of quality, environment and health management: ISO9001:2001, ISO14001:2004 and OHSAS18001:1999—a testimony to the importance we place on quality and safety control.

Hengchang: Our Flagship Brand

Backed by a strong reputation and credible track record for our commitment towards providing quality products and services, our Hengchang brand of polypropylene was named “Shandong Province Famous Trade Mark” and “Shandong Top Brand” in August and October 2005 respectively.

SINOSTARPEC

HOLDINGSLIMITED

DONGMINGHENGCHANG

PETROCHEMICALCO., LTD.

DONGMINGRUNCHANG

PETROCHEMICALCO. LTD

DONGMINGRUNBANG

PETROCHEMICALCO., LTD

DONGMINGPETROCHEMHOLDINGS

GROUP

49%

100%

51%

100%


OUR KEY PRODUCTS


OUR PRODUCTION PROCESSES

OUR KEY PRODUCTS

Briefi ng


OUR KEY PRODUCTS

PROPYLENEAn organic compound extracted from raw LPG

Sold to other petrochemical producers to produce chemical intermediates such as polypropylene, vinyl cyanide,epichlorohydrin, propylene glycol, acetone and isopropanol

POLYPROPYLENEA major derivative of propylene – a thermoplastic polymer which is resistant to chemicals and heat

Mainly sold to plastic manufacturers to produce plastic products for various industrial applications (i.e. fl exible packaging, rigid packaging, automotive and consumer products)

GASOLINEGasoline is an important fuel for engines, particularly for gasoline engines. It is widely used in automobiles, motorcycles, boats, helicopters and agricultural aircrafts.

DIESELDiesel is produced from crude oil via distillation. It is a special fuel used in compression-ignition engines (diesel engines).

Diesel is a watery-white, light yellow or brown liquid. There are two types of diesels: light diesel and heavy diesel. Light diesel is used in high-speed diesel engines of 1000r/min or above, and heavy diesel is used in mid and low speed diesel engines of less than 1000r/min.

LPGA type of liquefi ed petroleum gas used as a source of fuel by households and industrial manufacturers

Mainly sold as household fuel through LPG distributors. A small portion is also sold to industrial manufacturers that use LPG as a source of fuel for their own production


Engaged in the fractionation of raw LPG to produce downstream petrochemicals, namely propylene, polypropylene and LPG, our products

cater to a wide range of industrial application and are sold mainly to manufacturers of petrochemicals, plastic products and LPG distributors.

We have an annual capacity to process a total of 350,000 tonnes of raw LPG and are able to further process part of our generated propylene into 50,000 tonnes of polypropylene annually.

From April 2011, the new 1 million tonnes heavy oil conversion facility has been completed and commenced operation. This enlarge the products range especially gasoline, diesel and napthan, also increase our total fractionation capacity by another 300,000 tonnes thus giving the Group a total of fractionation capacity of 650,000 tonnes.

Our strategic affiliation with the Dongming Petrochem Holdings Group, one of the largest privately-owned crude oil refi ners in the PRC, ensures a secure and steady supply of heavy oil and raw LPG creating a solid foundation for our Group to continue to build on our existing market leadership position. This affiliation also ensures that the heavy oil and raw LPG we supply is of a consistent quality.


LETTER TO SHAREHOLDERS




Briefi ng



Dear Shareholders,

We are pleased to present our financial report for the fi scal year 2011 on behalf of the Board of Directors, and would like to take this opportunity

to express our gratitude for your support which has enabled us to focus on our long-term vision of strategic growth.

The past few years have presented one of the most challenging global economic environments in recent decades. In response to the unfavourable market conditions, the Group adopted a prudent approach to investment and focused on increasing effi ciency and fl exibility. Despite the loss in earnings in 2011, we developed stronger momentum across all our businesses, maintained a disciplined approach to managing costs and continued to target developments that pave the way for future revenue growth and profi tability.



GROUP PERFORMANCE

With the commencement of operation of Dongming Runchang in FY2011, the Group's revenue increased by 341.4% from RMB984.1 million in FY2010 to RMB4.3 billion in FY2011.

The gross profit decreased by 68.8% from RMB78.6 million in FY2010 to RMB24.5 million in FY2011. The Group had a net loss after tax of RMB12.0 million, the loss was mainly due to the commencement of production of new projects, combination of higher cost of raw materials and government pricing in the markets lagging behind, which led to a decrease in our profi t in Q3 2011. In addition, our strategic supplier, Dongming Zhongyou Fuel and Petrochemical Company Limited has ceased production and carried out major overhaul and maintenance of their plant since August 2011, and as a result, our subsidiary Dongming Hengchang Petrochemical Co., Ltd. was not able to procure suffi cient raw liquefi ed petroleum gas for production and accordingly affected its production and revenue generating.

NEW HEAVY OIL CONVERSION FACILITY

Our subsidiary Dongming Runchang Petrochemical Co. Ltd. started trial production with its new 1 million-tonne heavy oil conversion plant and 300 thousand-tonne gas fractionation installation in May 2011 and till early July 2011, which turned out successful. Although Dongming Runchang temporarily stopped the trial production in July 2011 for calibration of equipment and system adjustment, it resumed production in September 2011, therefore, its production and sales experienced a signifi cant growth. Barring unforeseeable circumstances, we are confident that the new plant will contribute positively to the Group in the near future.

MARKET OVERVIEWThe global outlook remains uncertain in 2012 amidst the worsening debt crises of Europe and the United States and concerns regarding whether the governments would escalate the necessary political, economic, fiscal and fi nancial reforms to restore economic growth. With the delayed recovery of economies of the developed countries, the political instability in the Mid-East and the possible slowdown of the emerging markets, oil prices are likely to stay volatile.

In anticipation of the changes in our operating environment, we have undertaken proactive measures to manage costs, increase the efficiency of our production and exercise greater prudence in decision. In 2011, we had announced that our subsidiary company, Dongming Hengchang Petrochemical Co. Ltd, would explore the possibility of acquiring from our joint-venture partner, Dongming Runbang Petrochemical Co. Ltd, its remaining 49% stake in the Dongming Runchang Petrochemical Co. Ltd., in order to achieve full ownership and expand the possibilities for the Group's future development. This plan has been temporarily placed on hold due to uncertain macroeconomic conditions. While the Group is cautiously optimistic about the developments in the oil and petrochemical industry in China, we still fi rmly believe that prudence is the best course of action in the current economic climate.



We are confident that the economic situation in China will remain favourable for the Group's operations. While infl ation was a key challenge in 2011, partly as a result of government monetary stimulus measures, rising prices have been successfully contained. The infl ation rate in December 2011 was 4.6 percent, down from 6.5 percent in July 2011. Meanwhile, there are concerns that the debt crisis in Europe would have adverse impact on China's economy as the European Union accounts for approximately 20 percent of China's exports. However, China is in transition from an export-dependent economic model to one based on domestic demand, and a series of measures have been announced to boost domestic demand, including reforming the income distribution system, improving the social security system and increasing domestic consumers' purchasing power. China has set the target growth rate from 2011-2015 at 7 percent and the IMF has predicted it to be 9 percent in 2012. World oil demand grew by a mere 1.04 percent in 2011, and the demand mainly came from the emerging countries. China is expected to be the main demand in 2012. China Petroleum and Chemical Industry Federation estimated that China's crude oil consumption will increase 5.3 percent year on year in 2012 to 9.6 million barrels per day. The Federation also forecasted that demand for gasoline, diesel and other oil products will increase by 5.8 percent from 2011.

DRIVING FUTURE GROWTH

Despite the challenges of the most difficult economic environment in decades, the Group has successfully made adjustments in operational strategies to cope with the upcoming changes. Sinostar PEC will continue to improve its operational strategies so as to achieve balanced and healthy growth as well as its long-term goal and create benefits for the shareholders. We are confident that the Group's financial strength, leadership, and presence in China will certainly enable us for faster growth. We will adhere to our business model and be offering the best services to our shareholders, customers, partners, and employees.

The Group will continue to pursue opportunities for development and restructuring that would safeguard the interests of our shareholders and broaden channels for the generation of financial returns in the current economic climate.

DIVIDEND

Due to the global economic uncertainty in 2012, in addition to the need of sufficient cash flow for the production of heavy oil conversion plant and gas fractionation installation, as well as the disappointing financial results in 2011, we have decided not to pay dividend. We will take active steps to grow and develop our business and enhance profi tability. We are looking at a further future in creating greater value for our shareholders.

ACKNOWLEDGEMENTS

We would like to express our deep appreciation to our shareholders for their continued confidence, loyalty and trust. We would also like to thank our business partners and customers for their longstanding support. Our achievements were made possible thanks to the professionalism and great efforts of all our staff. We wish to extend our appreciation to our fellow Board members whose advice, confidence and dedication over the years form an integral part of our success.

Thank you for your continued support.

Li Xiang PingNon-Executive Chairman

Fan Deng ChaoChief Executive Offi cer


致股東們的一封信

尊敬的各位股東：

在此，我們謹代表集團董事會向各位提交2011年度財政報告，并藉此機會對股東們的支持表示感謝。我們能夠專注集團的長遠戰

略發展，有賴於你們一直以來的支持。

過去數年所面臨的嚴峻環球經濟狀況，是數十年來所罕見的。為應對不利的市場狀況，本集團採取審慎投資方針，專注於提高效率及靈活性。儘管2011年出現虧損，但我們致力於提高各類業務的增長能力，在成本控制方面採取嚴謹態度，并繼續尋求發展機會，為未來收入增長及利潤的實現鋪平道路。

關於集團經營情況

東明潤昌於2011財政年度開始運營後，集團收入由2010財政年度的人民幣9.8億元增長341.4%，至2011財政年度的人民幣43億元。毛利則由2010年財政年度的人民幣7860萬元下降68.8%，至2011財政年度的人民幣2450萬元。集團稅後淨虧損為人民幣1200萬元，虧損主要是由於新建項目投產運營，合并增加的原材料成本上升及產品市場政府定價不到位，導致利潤於2011年第三季出現下跌。此外，我們的戰略供應商東明中油燃料石化有限公司的設施由於進行大修及保養，自2011年第三季開始停產，因此，我們的附屬公司東明恆昌化工有限公司未能採購足夠的原料液化氣用於生產，使其生產及收入受到影響。

新建重油轉化設施

我們的子公司東明潤昌化工有限公司新建的100萬噸重油轉化設施和30萬噸氣體分餾裝置於2011年5月至2011年七月初進行試產，並實現了試產一次成功。雖然為了調校設備及作出系統調整，提升系統效率，東明潤昌於2011年7月暫停試產，但公司於9月份基本進入正常生產。因此，公司的生產和銷售數額大幅上升。除非出現不可預見的情況，否則我們有信心新設施在不久的將來將對集團作出積極重大貢獻。

關於經濟環境

2012年全球經濟前景仍然不明朗，歐美債務危機加劇，市場也憂慮各國政府是否會繼續增加力度推行所需的政治、經濟、財政及財務改革來重振經濟。鑒於發達國家經濟復甦緩慢，中東政治局勢不穩定，且預期新興市場增長放緩，石油價格很可能反覆波動。



由於預計經營環境會出現變化，我們已採取積極措施控制成本、提高生產效率，審慎決策。2011年，我們宣佈子公司東明恆昌化工有限公司可能向合資夥伴東明潤邦化工有限公司收購其所持有的東明潤昌化工有限公司其餘49%股權，以全資擁有該公司，以開拓集團的未來發展機會，然而該計劃因宏觀經濟環境不明朗而擱置。雖然集團對中國石油及石化行業發展持審慎樂觀態度，但我們仍深信小心謹慎是安然渡過目前經濟氣候的良方。

我們相信中國經濟形勢將會持續好轉，並有利於集團的業務營運。雖然因政府推出貨幣刺激方案等因素，導致2011年通脹問題嚴重，但現在已成功遏止物價上漲。通脹率已由2011年7月的6.5%下跌至2011年12月的4.6%。同時，由於歐盟占中國出口量約20%，市場擔憂歐洲債務危機將對中國經濟構成負面影響，不過，中國現在正將其經濟模式由出口依賴逐步轉型為依賴內需，同時推出一連串措施刺激內需，包括改革收入分配製度、改善社保制度及提高國內消費者的購買力。中國政府2011年至2015年的目標增長率定為7%，國際貨幣基金則預測2012年中國增長率為9%。2011年，全球石油需求僅增長1.04%，需求主要來自新興國家，中國預計為2012年主要的石油需求國家。中國石油和化學工業聯合會估計中國市場的原油消耗量將於2012年按年增長5.3%，達到每天960萬桶。聯合會亦預測汽油、柴油及其他石油產品的需求將自2011年起增加5.8%。

未來發展

儘管面臨數十年來最嚴峻的經濟環境挑戰，但集團能夠成功調整經營策略，并作好準備應對即將發生的轉變，中星石化將會持續改進經營措施，實現持續平穩健康發展，確保能夠實現長期目標，為股東創造利益。我們相信：集團的財務實力、領導能力和在中國的市場良好聲譽，勢必為我們帶來更快的增長。我們將繼續堅持我們的業務模式，并為我們的股東、客戶、合作夥伴和員工提供更好的服務。

集團將繼續探索和追求發展以及重組等多種機會，在目前的經濟狀況下保障股東利益和拓展財務收益渠道，保證股東利益最大化。

關於2011年股息紅利分配

2012年，面對全球經濟的不確定性，由於集團的重油裂解和氣體分餾設施投產需要較多的現金流量，並且集團2011年的業績不夠理想，本集團決定2011年不派股息。我們將會採取積極措施發展壯大集團業務、提高收益，立足長遠，為股東創造更大的收益。

致謝

最後，衷心感謝股東們對我們寄予的信心、忠誠和信任！同時，也對一直以來支持我們的業務夥伴和客戶表示衷心感謝！正是憑借我們全體員工的專業精神和出色努力，我們才能取得今天的成就。我們也要向各位董事會成員表示衷心感謝，感謝你們多年來所給予的建議、信心和奉獻，這些對我們取得的成功發揮了重要作用。

感謝各位一直以來的支持！

李湘平董事局主席

樊登朝執行總裁




OPERATIONS REVIEW


OPERATIONS REVIEW

OPERATIONS REVIEW

Briefi ng


OPERATIONS REVIEW

FINANCIAL PERFORMANCE

The Group’s revenue increase by 341.4% from RMB 984 million in FY2010 to RMB 4.3 billion in FY2011, is largely attributable to the

commencement of operation of Dongming Runchang in FY2011. Notably, administrative and distribution expenses rose by 80.7% from RMB 17.5 million in FY2010 to RMB 28.1 million in FY2011, in tandem with the increase in operational activities.

The Group’s gross profi t decreased by 68.8% from RMB 78.6 million in FY2010 to RMB 24.5 million in FY2011. Profit before tax decreased from RMB62.6 million in FY2010 to RMB832 thousand in FY2011. The income tax expense of the Group increased by 44.7% from RMB8.9 million in FY2010 to RMB 12.9 million in 2011. This brought our full-year net loss after tax to RMB12.0 million in FY2011, compared to RMB53.7 million of profi t in FY2010. The loss in earnings were mainly due to the combination of higher cost of raw materials and uncertain market conditions which led to a decrease in the overall market selling prices experienced in the Q3 2011 period.

Current assets increased from RMB475.1 million in FY2010 to 506.8 million in FY2011. Trade and other receivables increased 43.8% from FY2010 to RMB81.9million in FY2011 mainly because of the amount owed to related parties in trade. RMB26.5 mill ion and RMB50.7 mill ion were payable on Dongming Runchang’s purchase of raw materials (heavy oil) from strategic suppliers, Dongming Zhongyou Fuel and Petrochemical Company Limited and Dongming Runbang Petrochemical Co. Ltd. respectively.

Net cash used in investing activities increased from RMB249.8 million in FY2010 to RMB264.5 million in FY2011. This is due to the RMB 250 million fi xed deposit placed with a financial institution which was due and returned in December 2011.

As of 31 December 2011, the Group maintained its robust cash position that stood at approximately RMB376.7 million.


OPERATIONS REVIEW

1,080

720

540

360

180

0

BREAKDOWN OF SALES(RMB Million)

1,800

PERFORMANCE BY SUBSIDIARIESDONGMING HENGCHANGSince Q3 2011 our strategic supplier, Dongming Zhongyou has temporary ceased production and thus Dongming Hengchang was unable to procure suffi cient raw LPG for production. Due to this limitation, revenue from sales of processed LPG decreased by 19.4% from RMB 593.1 million in FY2010 to RMB 477.7 million in FY2011. The volume of processed LPG produced and sold decreased by 29.9% in FY2011 as compared to FY2010. As of the date of this report, our strategic supplier has yet to re-commence its production due to plant maintenance and upgrading for the Ri-Dong line operations.

Dongming Hengchang has purchased a total of 17.8 thousand tonnes of propylene from Dongming Runchang since September 2011, for its polymerisation process production. As a result, the output of propylene increased by 1.5% in FY2011 compared to FY2010, and correspondingly, revenue from the sales of polypropylene increased by 12.1% from RMB 365.1 million in FY 2010 to RMB 409.4 million in FY2011.

DONGMING RUNCHANGDongming Runchang commenced its trial operation in May 2011. In Q2 2011, in order to test the operation and production process, Dongming Runchang purchased crude oil and fuel oil through Dongming Zhongyou Fuel and Petrochemical Company Limited (“Dongming Zhongyou”)and Shandong Dongming Petrochem Group Co., Ltd. (山東東明石化集團有限公司) (“Dongming Petrochem”) (collectively the “Strategic Suppliers”), which were further processed by the Strategic Suppliers and Shandong Dongming Petrochem Group Huize Co., Ltd. (山東東明石化集團匯澤有限公司 ) (“Dongming Huize”) to extract heavy oil. Heavy oil is a main raw material of Dongming Runchang catalytic cracking installation for manufacturing of gasoline, diesel oil, LPG and other oil products. Dongming Runchang temporarily stood down for a month since mid-July 2011 for the purposes of scheduled plant maintenance, equipments realignment and systems adjustment and re-commenced its production from mid-August 2011.

A total of 203.0 thousand tonnes of raw materials were procured and processed by our strategic supplier through its Vaccum Distillation process, another 568.5 thousand tonnes and 98.7 thousand tonnes through the catalytic cracking and gas fractionation processes. This generate a total sale revenue of Gasoline of RMB 1.5 billion, Diesel of RMB 1.0 billion, Processed LPG RMB 335 million, Propylene RMB 162 million and others oil products RMB 442 million.

1,440

1,260

Q1 Q2 Q3 Q4

Polypropylene

PropyleneProcessed LPG

Others

DieselGasoline

900

1,620

2010

2011

2011 2010 2011 2010 2011 2010 2011 2010

REVENUE BY PRODUCTS(%)

161

87

110

84

143

93

148

8

119

15

192

1 323

222

208

211

99

60

360

337

215

84

111

78

890

458

130

40

114

154

0

249

180

1,1251,185

1,786

326

249227

36.2

37.1

9.4

2.7

60.2

2.4

11.1

17.5

23.4

692


BOARD OF DIRECTORS

Mr Li Xiang Ping is our Non-Executive Chairman. He started his career as an accountant in Dongming County Medicine Company in 1983. He joined the Dongming County Audit Bureau as their deputy bureau offi cer in 1986 where he managed internal discipline issues. In 1993, he joined Dongming County

Petroleum Refi ning Factory as the fi nance manager. Mr Li subsequently became the chief accountant of Dongming County Petroleum Refi ning Factory and was overall in-charge of the fi nancial management of the factory.

In 1998, Mr Li was appointed as the director and chief auditor of Shandong Dongming Petrochem Group Company Limited (“Dongming Petrochem”) and was responsible for the daily operations of the business as well as the accounting functions of the company. In 2001, Mr Li was appointed chairman of Dongming Petrochem and has since been responsible for the overall development and operations of the business. Mr Li was selected as a People’s Representative in the 10th and 11th National People’s Congress of Shandong Province in 2003 and 2008 respectively.

He was also named “2007 Shandong Top 10 Business Man of the Year” by Da Zhong News Group. He is also a deputy chairman of the Dongming County Chinese People’s Political Consultative Conference. Mr Li received a senior auditor qualification from the Shandong Province Audit Profession Advance Accreditation Committee in December 1998 and a senior accountant qualifi cation from the Shandong Province Accounting Profession Advance Accreditation Committee in December 1999.

Mr Li obtained a Bachelor’s degree in Financial Accounting from the University of Shandong Officials in 1999 and has completed a business administration graduate programme offered by the Shandong University in December 2004. Mr Li was also recognised as one of the Top Ten Shandong Province Elitist Youth Entrepreneur in 2002, as one of the Top Ten Outstanding Enterprise Reform Personnel in 2005 and as a Nationwide Labour Role Model in 2005. Mr Li was named “Shandong Top 10 Business Man of the Year” again in 2008.

LI XIANG PINGNon-Executive Chairman

Mr Fan Deng Chao is responsible for the strategic development of our Group as well as overseeing the daily operations and management function of our subsidiary, Dongming Hengchang. Mr Fan has more than 20 years of experience in the petrochemical industry.

He first joined Dongming County Petroleum Refining Factory as an operations technician and was later appointed as the supervisor of the atmospheric-vacuum distillation production plant. Subsequently, he became the operations manager of the factory. In 1997, Mr Fan joined Dongming County Heat and Electricity Company as the general manager and was responsible for the daily operations of the company. In 2000, Mr Fan joined Dongming Hengchang as a deputy general manager and was subsequently promoted to general manager.

Mr Fan obtained a Bachelor’s degree in Operation Management Engineering from Shandong Industry University in July 1989 and a Masters in Engineering from Shandong Technology University in January 2006. He received a senior engineer qualifi cation from the Shandong Province Engineering Profession Advance

Accreditation Committee in January 2000. Mr Fan was selected as one of Heze City Technology Elite Professionals in May 2006 by the Heze Provincial Government.

Mr Wu Guozhi was appointed as a non-Executive Director of our Group on 27 April 2011.

He has more than 40 years of experience in the China petroleum industry. He started his career in 1970 in the Oil Transportation Bureau in Jilin Province where he rose quickly to become the Vice Chairman of the Trade Union, as well as Master and Party Branch Secretary of Xinmiao Oil Pump Station. In 1979, he went on to join the Tibet Autonomous Region Oil and Gas Company and served as the vice manager of its petroleum department. Between 1981 and 2010, Mr Wu took on various positions within PetroChina Company Limited and retired from the Group in June 2010 from his last position as its general manager and chairman based in Beijing.

Mr Wu holds a Bachelor’s degree in 1986 from the Daqing petroleum Institute in Business Administration.

FAN DENG CHAOChief Executive Offi cer and Executive Director

WU GUOZHINon-Executive Director


BOARD OF DIRECTORS

Mr Zhang Liu Cheng is an Executive Director of our Group and Deputy General Manager (Finance and Administration) of our subsidiary, Dongming Hengchang.

Mr Zhang worked in the Dongming County Finance Department as an accountant between 1996 and 2001 where he was responsible for the accounting functions of the department. In June 2004, Mr Zhang joined Dongming Hengchang as its chief financial controller overseeing the daily operations of the financial management and the overall fi nancial management of Dongming Hengchang.

Mr Zhang obtained a Bachelor’s degree in 1996 from Shandong University in Accounting. From 2001 to 2004, Mr Zhang studied in the China Agricultural University and attained a Masters in Agricultural Economy Management. He received an intermediate accountant qualification in May 2002 and a certified public valuer qualifi cation in November 2003 from the Ministry of Finance of the PRC.

ZHANG LIU CHENGExecutive Director and Deputy General Manager

Mr Lee Gee Aik was appointed as an Independent Director of our Group on 29 June 2007. Mr Lee is the founder of G A Lee and Associates, a Certifi ed Public Accounting fi rm in Singapore. He started his career as an auditor in KPMG Singapore in 1979 and was responsible for audit projects for various listed and non-listed companies.

Between 1986 and 1988, Mr Lee was seconded to KPMG USA Executive Office and specialised in the areas of professional development and research work in audit and fi nancial reporting. Mr Lee was subsequently appointed as senior manager of KPMG Singapore. Prior to the founding of G A Associates, Mr Lee was the regional controller of Omni Marco Polo Hotels between 1993 and 1998. He was also involved in evaluating potential new businesses.

Mr Lee qualified as a Chartered Certified Accountant with The Association of Chartered Certifi ed Accountants, United Kingdom in 1984. He obtained a Masters in Business Administration from Henley Management College, United Kingdom in

2004. He is currently a Fellow with the Association of Chartered Certifi ed Accountants, United Kingdom and The Institute of Certifi ed Public Accountants in Singapore. Mr Lee has lectured regularly for the Continuing Professional Education Programme of The Institute of Certifi ed Public Accountants of Singapore since 1993.

Mr Teo Moh Gin was appointed as an Independent Director of our Group on 29 June 2007. He is currently a director of Vive Capital Pte. Ltd and is involved in investment related work. Mr Teo has more than 25 years of global experience in finance, business development and consulting. He started his career in 1983 as a consultant in Arthur Andersen where he was in charge of various management consultancy projects. In 1990, he joined the Government of Singapore Investment Corporation as a senior investment officer (real estate department) and was responsible for the acquisition and management of prime commercial assets.

In 1998, he joined System Access Ltd as its fi nancial offi cer overseeing the fi nance and corporate development of the company. He was also previously with Transword Carnival Corporation as its chief executive officer and was responsible for the overall management of the company. He joined GKE International Ltd as their executive vice-president and was responsible for their merger and acquisitions function as well as business development of the company.

Between March 2006 and January 2007, he was the chief corporate offi cer of Richland Group and was responsible for the corporate development of the company. He obtained a Bachelor of Accountancy (Honours) from the National University of Singapore in 1983 and a post-graduate diploma in Business Administration from the University of Manchester in 1998.

LEE GEE AIKIndependent Director and Chairman ofthe Audit and Nominating Committees

TEO MOH GINIndependent Director and Chairmanof the Remuneration Committee


KEY MANAGEMENT

MU ZHI YUANDeputy General Manager(Production)

LIU ZHONG HUADeputy General Manager (Sales and Procurement)

TAN YEW CHEE WILLIAMChief Financial Offi cer

Mr Mu Zhi Yuan joined our subsidiary, Dongming Hengchang, in 2000. Mr Mu s t a r t ed a s a t echn ic ian in Dongming County Petroleum Refining Factory in 1990 and was responsible for implementing the production techniques of the factory. He was subsequently appointed as a measuring offi cer and was responsible fo r con t ro l l i ng the p roduc t ion process of the factory prior to joining Sinostar in 2000. He first joined us as a fractionation supervisor, and supervised our gas and fractionation activities.

M r M u w a s a p p o i n t e d a s t h e supervisor of our polypropylene production in 2001 and was in-charge of our production of polypropylene products. In 2003, Mr Mu became the Deputy General Manager (Production) of Dongming Hengchang and has since been responsible for the overall management o f our product ion activities, research and development functions, as well as our quality and safety control activities.

Mr Mu obtained his Bachelor’s degree in Petroleum Processing from China University of Petroleum in December 1996 and a Mas t e r s deg ree i n Industrial Engineering from Shandong Technology University in March 2007. He received an engineer qualifi cation from Heze City Engineering Technical Duties Accreditation Committee in November 1998.

Mr L i u Zhong Hua j o i ned ou r subsidiary, Dongming Hengchang in 2000. He oversees the operation of the sales and procurement functions of Dongming Hengchang. Mr Liu started his career as a technician in Dongming County Petroleum Refining Factory in 1990 and was mainly responsible for managing the operational efficiency and effectiveness of the company.

He was subsequently responsible for the procurement of crude oil and related materials for the Group prior to joining us. Mr Liu obtained a Bachelor’s degree in Management Engineering from China University of Petroleum in July 1990 and a Masters in Industrial Engineering from Shandong Technology University in June 2006. He received a professional senior economist qualification from Economic Profession Accreditation Committee in October 2002.

Mr William Tan joined the Group since 2008 as the Chief Financial Officer. He is responsible for the financial management and accounting functions of our Group.

Mr Tan embarked on his career as an audit assistant in a local audit firm in 1990. From 1992 to 2001, he was Managing Director for a local SME before he joined Nixvue Systems Pte Ltd as Financial Controller from 2002 to 2005, a subsidiary of Wearnes Technology Pte Ltd. From 2005 to 2007, Mr Tan joined Unidux Electronics Ltd as Group Financial Controller and was responsible for the overall finance & accounting, human resource, business development & planning functions of the group. He joined SNF Corporation Ltd in July 2007 as Group Financial Controller. Prior to joining our Group, Mr Tan was engaged by a SGX IPO-aspirant solar energy solution-maker in Beijing as Financial Consultant.

Mr Tan is a non-practising member of the Institute of Certified Public Accountants of Singapore and a Fellow member of The Association of Certifi ed Chartered Accountants (UK).


KEY MANAGEMENT

MR ZHANG YUNSHANChief Executive Offi cer

MR NIU XING PINGFinancial Controller

MR YANG SHU FANGDeputy General Manager (Production)

Mr Zhang Yunshan was appointed as Chief Executive Officer of our joint-venture subsidiary, Dongming Runchang Petrochemical Co., Ltd., since 2010. He began his career in Dongming Petrochemical Group in 1990. In 2000, Mr Zhang was appointed the Head of the Production Technology Section and then the General Manager of the Production Technology Department of Dongming Petrochemical Group. In 2003, he served as the Manager of Production D e p a r t m e n t o f o u r s u b s i d i a r y Dongming Hengchang Petrochemical Co., Ltd. In 2006 he was appointed as the General Manager of Production Scheduling Department of Dongming Pe t r ochemica l G roup . He was subsequently designated the General Manager of Dongming Zhongyou Group in 2008.

Mr Zhang holds a Bachelor degree in Petroleum Processing from the China University of Petroleum, Beijing. Mr Zhang was conferred the “Young Scientist Award” of Heze District, Shandong Province in 2004 and was named as a “Top-engineerTalent” in2006.

Mr Niu Xing Ping joined our subsidiary Dongming Runchang Petrochemical Co Ltd as Financial Controller at year end 2008. He is responsible for the full spectrum of finance and accounting matters of the subsidiary.

Mr Niu brings with him two decades of experience in finance. He joined Donming Petrochemical Holdings in 1990 as an Account Executive. In 2000, he assumed the post of Finance Manager of Dongming Hengchang Petrochemical Co Ltd. In 2003, he was promoted to Chief Accountant. A year later, he joined Dongming Heng-Jin Paper Co Ltd as Financial Controller. Mr Niu was appointed Vice-Chief Accountant for Shandong Zhong-You Logistic Co Ltd in 2005, prior to the transfer to his current post.

In 1989, he graduated f rom the Shandong University of Marketing and became a qualifi ed accountant in 1993.

Mr Yang Shu Fang was appointed as the Deputy General Manager (Production) o f ou r subs id ia ry, Dongming Runchang Chemical Co. Ltd in 2010. Prior to that, Mr Yang held the position of General Manager of the Dongming Petrochemical Group. In 2001, he was appointed the Head of Production Technology at Dongming Hengchang Chemical Co. Ltd,. From 2006 to 2008, he held various positions at Dongming Petrochemical Group, including Head of Catalytic Processing and Deputy General Manager. Mr Yang obtained a Master degree in Engineering from Shandong University of Technology in 2007. He also holds Bachelor degrees from the China University of Petroleum and Qingdao University of Science and Technology.


FINANCIAL HIGHLIGHTS

120010008006004002000

Polypropylene

Propylene

LPG

Others

Oil derivatives

REVENUE(RMB Million)

2011

409.4

4,342.2

706.5 104.3 3,043.6 24.4

2009

443.9

777.4

285.4 48.0

2008

681.6

1,081.5

328.8 71.0

2007

673.5

1,188.9

323.6 191.7

593.1

984.1

365.1 25.8

2010

120100806040200

Net Profit

Net Loss

Gross Profit

PROFITABILITY(RMB Million)

200959.5

42.5

201124.5

(12.0)

200870.3

59.8

2007112.7

92.4

201078.6

53.8

OTHER KEY FIGURES 2007

RMB’0002008

RMB’0002009

RMB’0002010

RMB’0002011

RMB’000Financial StrengthCash & cash equivalents 438,187 486,397 386,601 405,888 376,728

Debt & borrowings – – – – –

Net current assets 424,580 484,685 366,516 377,399 367,617

Shareholders’ equity 477,595 537,164 584,230 642,492 632,875

Cash FlowOperating cash fl ow 124,765 45,405 33,914 23,438 40,092

Investing cash fl ow (2,310) (55,359) (221,993) (352,068) 195,624

Financing cash fl ow 246,063 59,080 88,283 97,917 (14,877)

Shareholders’ WealthNumber of shares on issue 640,000 640,000 640,000 640,000 640,000

Basic earnings per share (RMB cents) 32.10 9.36 7.32 9.09 1.01

Net asset value per share (RMB cents) 74.62 93.11 91.29 100.39 98.89

Net cash value per share (RMB cents) 68.46 75.99 60.40 63.42 58.86

Dividend yield na na na 2.5% na

Market priceHigh S$0.950 S$0.570 $0.290 $0.275 $0.270

Low S$0.435 S$0.055 $0.060 $0.160 $0.170

Closing S$0.550 S$0.085 $0.185 $0.200 $0.200

CORPORATE GOVERNANCE REPORTSINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 25

The Board of Directors (the “Board”) of Sinostar PEC Holdings Limited (the “Company”) recognises the importance of corporate governance and the offering of high standards of accountability to the shareholders of the Company by complying with the benchmark set by the Code of Corporate Governance 2005 (the “Code”).

This report sets out the corporate governance practices that have been adopted by the Company with specific reference to the principles of the Code, as well as any deviation from any guideline of the Code together with an explanation for such deviation.

STATEMENT OF COMPLIANCE

The Board confirms that for the financial year ended 31 December 2011, the Company has generally adhered to the principles and guidelines as set out in the Code save as otherwise explained below.

BOARD MATTERSThe Board’s Conduct of AffairsPrinciple 1: Every company should be headed by an effective Board to lead and control the Company. The Board is collectively responsible for the success of the Company. The Board works with the management of the Company (the “Management”) to achieve this and the Management remains accountable to the Board.

As at the date of this Annual Report, the Board comprises six directors, which include two executive directors, two non-executive directors (one of whom is the non-executive chairman) and two independent non-executive directors, all of whom are from different disciplines and bring with them diversity of experience which will enable them to contribute effectively to the Company.

The principal functions of the Board, apart from its statutory responsibilities, include:

• reviewing and overseeing the management of the Group’s business affairs and financial controls, performance and resource allocation;

• approving matters such as corporate strategy and business plans, corporate restructuring, mergers and acquisitions, major investments and divestments, material acquisitions and disposals of assets and major corporate policies on key areas of operations; and

• approving the release of the Group’s quarterly and full-year financial results and related party transactions of a material nature.

The Board has established three Board committees, namely, the Audit Committee (“AC”), the Nominating Committee (“NC”) and the Remuneration Committee (“RC”) to assist in the execution of its responsibilities. These committees operate within clearly defined terms of reference.

The Board will meet on a quarterly basis and ad-hoc Board meetings will be convened when they are deemed necessary. In between Board meetings, other important matters will be put to the Board’s approval by way of circulating resolutions in writing. The Company’s Articles of Association provide for meetings of Directors to be held by means of telephone conference or other methods of simultaneous communication by electronic or other means.

Newly appointed directors are given an orientation on the Group’s business strategies and operations. Directors also have the opportunity to visit the Group’s operating facilities and meet with the Management to gain a better understanding of the Group’s business operations and governance practices. All directors who have no prior experience acting as directors of a listed company will undergo the necessary training and briefing on the roles and responsibilities as directors of a listed company.

CORPORATE GOVERNANCE REPORT26 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011

BOARD COMPOSITION AND GUIDANCEPrinciple 2: There should be a strong and independent element on the Board, which is able to exercise objective judgment on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board’s decision making.

As at the date of this report, the Board comprises the following directors:

Executive DirectorsFan Deng Chao Chief Executive OfficerZhang Liu Cheng Executive Director

Non-Executive DirectorsLi Xiang Ping Non-Executive ChairmanWu Guo Zhi Non-Executive DirectorLee Gee Aik Independent Non-Executive DirectorTeo Moh Gin Independent Non-Executive Director

The independent non-executive directors make up one-third of the Board. The Board has adopted the Code’s criteria of an independent non-executive director in its review. An “independent” director is one who has no relationship with the Company, its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the directors’ independent business judgment with a view to the best interests of the Company. The Board is of the view that all independent non-executive directors have satisfied such criteria of independence as a result of its review. The independence of each independent non-executive director will be reviewed annually by the NC.

The composition of the Board will be reviewed annually by the NC to ensure that there is an appropriate mix of expertise and experience, which the Group may tap for assistance in furthering its business objectives and shaping its business strategies. Together, the directors as a group provide core competencies in business, accounting, investment, audit and taxation matters.

The independent non-executive directors also communicate regularly to discuss matters such as the Group’s financial performance, corporate governance initiatives and the remuneration of the executive directors and executive officers.

The profiles of each of the directors are set out on pages 20 and 21 of this Annual Report. The Board considers the current Board size appropriate for the nature and scope of the Group’s operations.

CHAIRMAN AND CHIEF EXECUTIVE OFFICERPrinciple 3: There should be a clear division of responsibilities at the top of the company – the working of the Board and the executive responsibility of the company’s business – which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power.

The Non-Executive Chairman and the Chief Executive Officer of the Company are separate individuals. Mr Fan Deng Chao is the Executive Director of the Company and bears executive responsibility for the Group’s business performance. He also assumes the responsibility of the Chief Executive Officer of the Board and is responsible for scheduling Board meetings as and when required, setting the agenda for Board meetings in consultation with the Non-Executive Chairman and ensuring the quality, quantity and timeliness of the flow of information between the Management, the Board and shareholders. He is also responsible for ensuring compliance with the Company’s guidelines on corporate governance.

As the Non-Executive Chairman, Mr Li Xiang Ping leads the Board, encourages constructive relations between the Board and Management, as well as between Board members and promotes high standards of corporate governance. The Non-Executive Chairman leads each Board meeting and ensures full discussion of the items on the agenda. The Board is of the view that with the establishment of the three Board committees, there are adequate safeguards in place to prevent an uneven concentration of power and authority in a single individual. In assuming their roles and responsibilities, the Non-Executive Chairman and the Chief Executive Officer consult with the Board and the respective Committees on major issues.


BOARD MEMBERSHIPPrinciple 4: There should be a formal and transparent process for the appointment of new directors to the Board.

The NC comprises the following members:

Lee Gee Aik (Chairman)Teo Moh GinLi Xiang Ping

Mr Lee Gee Aik and Mr Teo Moh Gin are independent non-executive directors, whilst Mr Li Xiang Ping is the Non-Executive Chairman.

The terms of reference of the NC have been approved and adopted. The duties and powers of the NC include:

– making recommendations to the Board on all Board appointments and re-nominations having regard to the director’s contribution and performance (such as attendance, preparedness, participation and candour);

– ensuring that all directors submit themselves for re-nomination and re-election at regular intervals and at least once every three years;

– determining annually whether a director is independent in accordance with paragraph 2.1 of the Code;

– formulating and deciding whether a director is able to and has adequately carried out his duties as a director of the Company, in particular, where the director concerned has multiple board representations; and

– assessing the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board.

All directors submit themselves for re-nomination and re-election at regular intervals of at least once every three years. Pursuant to Article 104 of the Company’s Articles of Association, one-third of the Directors shall retire from office at least once every three years at the Company’s Annual General Meeting (“AGM”). In addition, Article 106 of the Company’s Articles of Association provides that the retiring directors are eligible to offer themselves for re- election.

Pursuant to Article 114 of the Company’s Articles of Association, Directors shall have power at any time to appoint any other qualified person as Director either to fill a casual vacancy or as an addition to the Board. But any Director so appointed shall hold office only until the next Annual General Meeting of the Company, and shall be eligible for re-election.

The dates of initial appointment of each director, together with their directorships in other listed companies are set out below:

Name of director AppointmentDate of initial appointment

Date of last re-election

Current Directorships in listed companies

Past Directorships in listed companies

Li Xiang PingAge: 49

Non-ExecutiveChairman

6 July 2006 26 April 2010 None None

Fan Deng ChaoAge: 46

Chief ExecutiveOfficer

6 July 2006 24 April 2009 None None

Zhang Liu ChengAge: 40

Executive Director 6 July 2006 26 April 2010 None None

Wu Guo ZhiAge: 61

Non-Executive Director

27 April 2011 – None None


Name of director AppointmentDate of initial appointment

Date of last re-election

Current Directorships in listed companies

Past Directorships in listed companies

Lee Gee AikAge: 53

IndependentDirector

29 June 2007 27 April 2011 Westminster Travel (S) Limited

None

Leader Environmental Technologies Limited

Anchun International Holdings Ltd.

Teo Moh GinAge: 53

IndependentDirector

29 June 2007 27 April 2011 China Sun Bio-Chem Technology Company Group Ltd

None

Yangzijiang Shipbuilding (Holdings) Ltd.

Qian Feng Fabric Tech Limited

* According to Article 104 of the Company’s Articles of Association, Mr Fan Deng Chao and Mr Li Xiang Ping will retire at the Company’s forthcoming AGM and will be eligible for re-election.

* According to Article 114 of the Company’s Articles of Association, Mr Wu Guo Zhi will retire at the Company’s forthcoming AGM and will be eligible for re-election.

In its search and nomination process for new directors, the NC has, at its disposal, search companies, personal contacts and recommendations for the right candidates.

Key information on the individual directors and their shareholdings in the Company are set out on pages 20, 21 and 40 of this Annual Report.

BOARD PERFORMANCEPrinciple 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board.

The Board’s performance is linked to the overall performance of the Group. The Board should ensure compliance with the applicable laws and the Board members should act in good faith, with due diligence and care in the best interest of the Company and its shareholders.

The NC is responsible for assessing the effectiveness of the Board as a whole and for assessing the contribution of each individual director. The Board performance assessment is undertaken collectively and informally on a continual basis by the NC with input from the other Board members. A formal review of the Board’s performance is conducted annually by way of a Board Assessment Checklist, which is circulated to the Board members for completion and thereafter, for the NC to review to determine the actions required to improve the corporate governance of the company and effectiveness of the Board and committees of the Board.


For financial year ended 31 December 2011, individual assessment of directors had been conducted at the NC meeting held on 27 February 2012. The criteria for assessment include performance of principal functions and fiduciary duties, level of participation at meetings and individual attendance record.

The NC has assessed the current Board’s performance to-date and is of the view that the performance of the Board as a whole is adequate to measure the effectiveness of the Board’s performance. Although some of the Board members have multiple board representations, the NC is satisfied that sufficient time and attention has been given by the Directors to the Group.

ACCESS TO INFORMATIONPrinciple 6: In order to fulfil their responsibilities, Board members should be provided with complete, adequate and timely information prior to Board meetings and on an on-going basis.

The Company recognises the importance of the flow of information for the Board to discharge its duties effectively. All directors are furnished with the management accounts of the Group and regular updates on the financial position of the Company. The Board has separate and independent access to the Company Secretary and Management at all times. The Company Secretary facilitates information flow within the Board and its committees and between senior management. The Company Secretary attends all Board meetings and meetings of the Board committees of the Company and ensures that the Company complies with the requirements of the Companies Act and the SGX-ST. The minutes of all Board committees’ meetings are circulated to the Board.

The Board will have independent access to professional advice when required, subject to the approval of theChairman. The fees of professional advice will be borne by the Company.

REMUNERATION MATTERSProcedures for Developing Remuneration PoliciesPrinciple 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.

As at the date of this Annual Report, the RC comprises the following members:

Teo Moh Gin (Chairman)Lee Gee AikLi Xiang Ping

Mr Teo Moh Gin and Mr Lee Gee Aik are independent non-executive directors, whilst Mr Li Xiang Ping is a Non-Executive Chairman.

The terms of reference of the RC have been approved and adopted. The duties and powers of the RC include:

– recommending to the Board a framework of remuneration for the directors and senior management;

– determining specific remuneration packages for each executive director. The RC should cover all aspects of remuneration including but not limited to directors’ fees, salaries, allowances, bonuses, options and benefits in kind. In setting remuneration packages, the RC should be aware of pay and employment conditions within the industry and in comparable companies. The remuneration packages should take into account the Company’s relative performance and the performance of individual directors;


– the remuneration of non-executive directors should be appropriate to the level of contribution, taking into account factors such as effort and time spent, and the responsibilities of the directors. Non-executive directors should not be over-compensated to the extent that their independence may be compromised;

– in the case of service contracts of directors, reviewing and recommending to the Board the terms of renewal of the service contracts. There should be a fixed appointment period for all directors after which they are subject to re-election. The service contracts should not be excessively long or with onerous removal clauses. The RC should consider what compensation commitments the directors’ contracts of service, if any, would entail in the event of early termination. The RC should aim to be fair and avoid rewarding poor performers; and

– considering the various disclosure requirements for directors’ and key executives’ remuneration, particularly those required by regulatory bodies such as the SGX-ST, and ensure that there is adequate disclosure in the financial statements to ensure and enhance transparency between the Company and relevant interested parties.

The RC’s recommendations are submitted for endorsement by the entire Board. The overriding principle is that no director should be involved in deciding his own remuneration.

LEVEL AND MIX OF REMUNERATIONPrinciple 8: The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the company successfully but companies should avoid paying more than is necessary for this purpose. A significant proportion of executive directors’ remuneration should be structured so as to link rewards to corporate and individual performance.

In setting remuneration packages, the Company takes into consideration the remuneration packages and employment conditions within the industry and in comparable companies. The remuneration package also takes into account the Company’s relative performance and the performance of individual directors.

The non-executive and independent non-executive directors are paid directors’ fees, taking into account factors such as effort and time spent, and responsibilities of the directors. Directors’ fees are recommended by the Board for approval at the Company’s AGM.

The executive directors do not receive directors’ fees. The remuneration packages of the executive directors include a basic salary. The executive directors are entitled to receive an annual incentive bonus.

The Company has entered into service agreements with the executive directors, Mr Fan Deng Chao and Mr Zhang Liu Cheng for an initial period of three years with effect from 26 September 2007. Upon the expiry of the initial period of three years, the employment of the executive directors shall be automatically renewed on a year-to-year basis on such terms and conditions as the parties may agree. The service agreement provides for termination by each party giving not less than six months’ notice in writing.


DISCLOSURE ON REMUNERATIONPrinciple 9: Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration in the company’s annual report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key executives, and performance.

The following shows the level and mix of each director’s remuneration paid or payable for the financial year ended31 December 2011:

Remuneration bands Salary(1)

% Variable or

performance related income/

bonuses%

Directors’fees (2)

%

Total%

Directors

Below S$250,000

Li Xiang Ping – – 100 100

Fan Deng Chao 100 – – 100

Zhang Liu Cheng 100 – – 100

Wu Guo Zhi(3) 100 – – 100

Lee Gee Aik – – 100 100

Teo Moh Gin – – 100 100

Executive Officers

Below S$250,000

Liu Zhong Hua 100 – – 100

Mu Zhi Yuan 100 – – 100

Tan Yew Chee William 100 – – 100

Zhang Yun Shan 100 – – 100

Niu Xing Ping 100 – – 100

Yang Shu Fang 100 – – 100

Notes:

(1) Salary is inclusive of salary, allowances, Central Provident Fund contributions and pension funds.

(2) Directors’ fees are subject to approval of the shareholders at the forthcoming AGM.

(3) Wu Guo Zhi was appointed as a Non-Executive Director of the Company on 27 April 2011.

No employee who is an immediate family member of any director was paid more than S$150,000 during the financial year ended 31 December 2011.

The Company has not implemented any employee share scheme during the financial year ended 31 December2011.


ACCOUNTABILITY AND AUDIT AccountabilityPrinciple 10: The Board should present a balanced and understandable assessment of the company’s performance, position and prospects.

The Board understands its accountability to the shareholders on the Group’s performance, position and prospects. The objectives of the presentation of the annual financial statements and quarterly announcements to its shareholders are to provide the shareholders with a balanced and understandable analysis and explanation of the Group’s financial performance, position and prospects.

The Management understands its role to provide all members of the Board with balanced and understandable management accounts of the Group’s performance, position and prospects on a monthly basis.

Audit CommitteePrinciple 11: The Board should establish an AC with written terms of reference which clearly set out its authority and duties.

The AC comprises the following members:


Mr Lee Gee Aik and Mr Teo Moh Gin are independent non-executive directors, whilst Mr Li Xiang Ping is a Non-Executive Chairman.

The terms of reference of the AC have been approved and adopted. The roles and functions of the AC include:

– reviewing with the external auditors their audit plan, their evaluation of the system of internal accounting controls, their audit report, their management letter and the Management’s response;

– reviewing the internal control and procedures and ensuring co-ordination between the external auditors and the Management, reviewing the co-operation and assistance given by the Management to the external auditors, and discussing problems and concerns, if any, arising from the interim and final audits and any matters which the auditors may wish to discuss (in the absence of the Management where necessary);

– ensuring that a review of the effectiveness of the Company’s material internal controls, including financial, operational and compliance controls, and risk management, is conducted at least annually by the external auditors;

– reviewing and ensuring the integrity of the financial statements of the Group before submission to the Board focusing in particular, on significant financial reporting issues, changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit, the going concern statement, compliance with accounting standards as well as compliance with any stock exchange and statutory/regulatory requirements;

– commissioning, reviewing and discussing with the external auditors, if necessary, any suspected fraud or irregularity, or suspected failure of internal controls, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on the Group’s operating results and/or financial position, and the Management’s response;

– reviewing the scope and results of the audit and its cost effectiveness and the independence and objectivity of the external auditors, and where the external auditors also supply a substantial volume of non-audit services to the Company, keeping the nature and extent of such services under review, seeking to balance the maintenance of objectivity and value for money;


– reviewing the independence of the external auditors annually, and recommending to the Board the appointment, re-appointment or removal of the external auditors and approving the remuneration and terms of engagement of the external auditors;

– approving internal control procedures and arrangements for all interested person transactions;

– ensuring that arrangements are in place for staff to raise concerns about possible improprieties in matters of financial reporting or other matters in confidence and that there is independent investigation of such matters and for appropriate follow up action;

– reviewing transactions falling within the scope of the SGX-ST Listing Manual, in particular, matters pertaining to Interested Person Transactions and Acquisitions and Realisations as laid down in Chapters 9 and 10 respectively;

– reviewing any potential conflicts of interests;

– undertaking such other reviews and projects as may be requested by the Board and reporting to the Board its findings from time to time on matters arising and requiring the attention of the AC; and

– generally undertaking such other functions and duties as may be required by statute or the SGX-ST Listing Manual, and by such amendments made thereto from time to time.

The AC shall have explicit authority to investigate any matter within its terms of reference, full access to and co- operation by the Management and full discretion to invite any director or executive officer of the Group to attend its meetings, and be given reasonable resources to enable it to discharge its functions properly and effectively.

The AC meets with the external auditors, without the presence of the Management, at least annually.

The Company has put in place a whistle-blowing policy and procedures, which provide staff with well-defined and accessible channels within the Group for reporting possible improprieties in matters of financial reporting or other matters in confidence and there is independent investigation of such matters and appropriate follow-up action.

The Company’s external auditors are Foo Kon Tan Grant Thornton LLP. The AC has recommended to the Board that Foo Kon Tan Grant Thornton LLP be nominated for re-election as external auditors at the forthcoming AGM.

The Company is in compliance with Rules 712 and 715 of the Listing Manual in relation to its external auditors.

Internal ControlsPrinciple 12: The Board should ensure that the Management maintains a sound system of internal controls to safeguard the shareholders’ investments and the company’s assets.

The Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective control system will preclude all errors and irregularities, as a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss.

The Group has implemented a system of internal controls designed to provide reasonable but not absolute assurance that assets are safeguarded, proper accounting records are maintained, operational controls are adequate and business risks are suitably managed.

Members of the AC have independent access to the external auditors.


Subsequent to the commencement of trial operations of the Group’s new production facilities in May 2011, the Group has introduced additional new internal control procedures and has been implementing such new procedures during 2011. The AC has been reviewing the effectiveness of such internal controls processes adopted by the Group, and are still doing so. The AC makes enquiries with, and relies on reports, from the Management and external auditors on any material non-compliance and internal control weaknesses. The AC has reviewed with external auditors their findings during their audit for the financial year under review. The Board, with the concurrence of the AC, is of the view that, in the absence of evidence to the contrary, the system of internal controls maintained by the Company provides reasonable, but not absolute, assurance of the adequacy of the internal controls in addressing the financial, operational and compliance risks of the Company. The Board and the AC noted that all internal controls contain inherent limitations and no systems of internal controls could provide absolute assurance against the occurrence of material errors, poor judgment in decision making, human error, losses, fraud or other irregularities. The Board will continue its risk assessment process, which is an on-going process, with a view to improve the Company’s internal controls system.

The AC has the independent authority to investigate any matter fallings within its terms of reference, which includes full access to, and co-operation from management and full discretion to invite any director or executive officer to attend its meetings, and reasonable resources to enable it to discharge its functions properly.

Internal AuditPrinciple 13: The Company should establish an internal audit function that is independent of the activities it audits.

The Board recognises the importance of maintaining a system of internal controls to safeguard the shareholders’ investments and the Company’s assets.

As the Group’s new production facilities has started its trial operations in May 2011, the Group has introduced additional new internal control procedures and has been implementing such new procedures during 2011. The AC has been reviewing the effectiveness of such internal control processes adopted by the Group, and are still doing so. Currently, the AC is in the process of commissioning an outsourced internal audit service provider to carry out internal audit on the Group’s internal control system for the new production facilities after they have been fully implemented. Such service provider will work within the scope of an audit plan, to be approved by the AC, in order to review and test the adequacy and effectiveness of the internal controls of the Group, in particular in relation to the new production facilities.

COMMUNICATION WITH SHAREHOLDERS Communication with ShareholdersPrinciple 14: Companies should engage in regular, effective and fair communication with shareholders.

The Company’s quarterly, half year and full year announcements are issued via SGXNET and via the Company website at www.sinostar-pec.com.

The Company discloses all material information on a timely basis and to all shareholders.


Principle 15: Companies should encourage greater shareholder participation at AGMs, and allow shareholders the opportunity to communicate their views on various matters affecting the company.

The Company supports the Code’s principle to encourage communication with and participation by shareholders. Shareholders are encouraged to attend the AGM to ensure a greater level of shareholder participation. The Articles of Association allow a shareholder of the Company to appoint up to two proxies to attend the AGM and vote in place of the shareholder. Shareholders are given the opportunity to pose questions to the Board or the Management at the AGM. The members of the AC, NC and RC will be present at the AGM to answer questions relating to matters overseen by the committees. The external auditors will also be present to assist the directors in addressing any queries posed by the shareholders.

The Board notes that there should be separate resolutions at general meetings on each substantially separate issue and supports the Code’s principle as regards “bundling” of resolutions. In the event that there are resolutions which are interlinked, the Board will explain the reasons and material implications.

DEALING IN SECURITIES

The Group has adopted and implemented policies in line with the Rule 1207(19) of the SGX-ST Listing Manual in relation to the dealing of shares of the Company. The policies have been made known to directors, executive officers and any other persons as determined by the Management who may possess unpublished material price-sensitive information of the Group.

The Group has procedures in place prohibiting directors and officers from dealing in the Company’s shares during the two weeks before the announcement of the Company’s financial statements for each of the first three quarters of its financial year and the one month before the announcement of the Company’s full year financial statements (“Prohibited Periods”), or if they are in possession of unpublished material price-sensitive information of the Group.

Directors and officers are required to comply with and observe the laws on insider trading even if they trade in the Company’s securities outside the Prohibited Periods. They are discouraged from dealing in the Company’s securities on short-term considerations and should be mindful of the law on insider trading.

The Board confirms that for the financial year ended 31 December 2011, the Company has complied with Listing Rule 1207(19).

INTERESTED PERSON TRANSACTIONS

The Company is required to comply with the requisite rules under Chapter 9 of the SGX-ST Listing Manual for interested person transactions.

All interested person transactions will be properly documented and submitted to the AC for quarterly review to ensure that they are carried out on an arm’s length basis, on normal commercial terms and will not be prejudicial to the interests of the shareholders.

In addition, an interested person transaction of a value equal to or more than 3% of the Group’s latest audited net tangible assets will be approved by the AC prior to entry into such transactions.

In the event that a member of the AC is interested in any interested person transaction, he will abstain from reviewing that particular transaction.

The Board will ensure that all disclosure, approval and other requirements on interested person transactions, including those required by prevailing legislation, the SGX-ST Listing Manual and accounting standards are complied with.


A summary of the interested person transactions for FY2011 is as follows:

Name of Interested Person Aggregate value of all interested person transactions during the financial year under review (excluding transactions less than $100,000 and transactions conducted under shareholders’ mandate pursuant to Rule 920)

Aggregate value of all interested person transactions conducted during the financial year under review under shareholders’ mandate pursuant to Rule 920 (excluding transactions less than $100,000)

Dongming Zhongyou Fuel and Petrochemical Company Limited(東明中油燃料石化有限公司)(“Dongming Zhongyou”)

(a) Purchase of raw LPG from Dongming Zhongyou

(b) Prepayment for raw materials to Dongming Zhongyou

(c) Contract processing fee

(d) Payment made to Dongming Zhongyou for the purchase of raw materials (including cost reimbursement and procurement fees)

(e) Trade financing

(f) Sale of residual oil/ asphalt

Shandong Dongming Petrochem Group Co., Ltd.(山東明石化集團有限公司) (“Dongming Petrochem”)

(a) Payment of utilities supplied by Dongming Petrochem

(b) Payment made to Dongming Petrochem for the purchase of raw materials (including cost reimbursement and procurement fees

RMB405,050,327

RMB423,700,000

RMB49,653,440

RMB3,104,422,515

RMB20,000,000

RMB232,354,398

RMB15,718,504

RMB232,611,766


Name of Interested Person Aggregate value of all interested person transactions during the financial year under review (excluding transactions less than $100,000 and transactions conducted under shareholders’ mandate pursuant to Rule 920)

Aggregate value of all interested person transactions conducted during the financial year under review under shareholders’ mandate pursuant to Rule 920 (excluding transactions less than $100,000)

Shandong Dongming Petrochem Group Hengji Chemical Company Limited(山東東明恆基化工有限公司)(“Dongming Hengji”)

Sales of LPG to Dongming Hengji

Dongming Runbang Petrochemical Co., Ltd. (山東東明潤邦化工有限公司)(“Dongming Runbang”)

(a) Payment of utilities supplied by Dongming Runbang

(b) Contract processing fee

Shandong Dongming Petrochem Group Huize Co., Ltd.(山東東明石化集團匯澤有限公司)

(a) Contract processing fee

(b) Purchase of raw materials

Dongming Petroleum Distribution Co., Ltd. (東明石化經銷有限公司)

Distribution Commission

RMB117,992,702

RMB43,642,409

RMB46,427,236

RMB8,035,739

RMB101,621,738

RMB3,272,835

The Group has been entering into recurring transactions with the Dongming Petrochem Group (of which the companies are as set out in the table above), the aggregate value of which exceeds 5% of the Group’s latest audited net tangible assets (the “NTA”), and the Company shall be seeking ratification from its shareholders of such transactions which took place in the period subsequent to 18 February 2011 at the EGM to be convened by the Company in due course. Please refer to announcements released by the Company on 11 August 2011 and 12 August 2011.


DIRECTORS’ ATTENDANCE AT BOARD, AUDIT COMMITTEE, REMUNERATION COMMITTEE AND NOMINATING COMMITTEE MEETINGS

The number of meetings held and attendance at the meetings for FY2011 were as follows:

Board AuditCommittee

RemunerationCommittee

NominatingCommittee

Name of director

No. of meetings

held

No. of meetings attended

No. of meetings

held


No. of meetings

held


No. of meetings

held


Li Xiang Ping

Fan Deng Chao

Zhang Liu Cheng

Wu Guo Zhi*

Lee Gee Aik

Teo Moh Gin

5

5

5

5

5

5

3

5

5

3

5

5

4

–

–

–

4

4

2

–

–

–

4

4

1

–

–

–

1

1

1

–

–

–

1

1

1

–

–

–

1

1

1

–

–

–

1

1

Note: Wu Guo Zhi was appointed as a non-executive director on 27 April 2011.

NON-AUDIT FEES

Services such as tax review and review of financial results announcement had been rendered by our Auditors for FY2011 and their fees amounted to approximately S$2,500 and S$ 42,000 respectively.

MATERIAL CONTRACTS

There are no material contracts of the Group involving the interests of any of the directors or controlling shareholders of the Company subsisting at the end of financial year ended 31 December 2011 or have been entered into since the end of the previous financial year.

RISK MANAGEMENT

The management regularly reviews the Group’s business and operational activities to identify areas of significant business risks as well as appropriate measures to control and mitigate these risks. The management reviews all significant control policies and procedures and highlights all significant matters to the Board and the AC.


Page

Directors’ report 40Statement by directors 43Independent auditor’s report 44Statements of financial position 46Consolidated statement of comprehensive income 47Consolidated statement of changes in equity 48Consolidated statement of cash flows 49Notes to the financial statements 50

CONTENTS

DIRECTORS’ REPORTFor the fi nancial year ended 31 December 2011


The directors submit this annual report to the members together with the audited consolidated financial statements of the Group and statement of financial position of the Company for the financial year ended 31 December 2011.

NAMES OF DIRECTORSThe directors of the Company in office at the date of this report are:

Li Xiang PingFan Deng ChaoZhang Liu ChengWu Guo Zhi (Non-executive director)Lee Gee Aik (Independent non-executive director)Teo Moh Gin (Independent non-executive director)

ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES OR DEBENTURESDuring and at the end of the financial year, neither the Company nor any of its subsidiaries was a party to any arrangement of which the object was to enable the directors to acquire benefits through the acquisition of shares in or debentures of the Company or of any other corporate body.

DIRECTORS’ INTEREST IN SHARES OR DEBENTURESAccording to the Register of Directors’ Shareholdings kept by the Company under Section 164 of the Companies Act, Cap. 50, none of the directors who held office at the end of the financial year had any interest in the shares or debentures of the Company or its related corporations, except as follows:

Holdings registered in the name Holdings in which director isof director or nominee deemed to have an interest

As at 1 January 2011

As at 31 December 2011 and 21

January 2012As at 1

January 2011

As at 31 December 2011 and 21

January 2012

The Company –Sinostar PEC Holdings Limited(Ordinary shares)Li Xiang Ping – – 329,996,000 329,996,000Zhang Liu Cheng 200,000 200,000 – –Lee Gee Aik 100,000 100,000 – –Teo Moh Gin 100,000 100,000 – –

Holding company –Intelligent People Holdings Limited(Ordinary shares of US$1 each)Li Xiang Ping 7,195 7,195 – –Fan Deng Chao 1,297 1,297 – –

Mr Li Xiang Ping, by virtue of the provisions of Section 7 of the Companies Act, Cap. 50, is deemed to have an interest in the whole of the issued share capital of the wholly-owned subsidiary of the Company and Intelligent People Holdings Limited, and in the shares held by the Company in the following subsidiary that is not wholly owned by the Group:

Dongming Runchang Petrochemical Co, Ltd

There are no changes to the above shareholdings as at 21 January 2012.



DIRECTORS’ BENEFITSSince the end of the previous financial year, no director has received or has become entitled to receive a benefit under a contract which is required to be disclosed under Section 201(8) of the Companies Act, Cap. 50., except for salaries, bonuses and fees and those benefits that are disclosed in Note 17(c) and Note 17(e) to the financial statements.

SHARE OPTIONSNo options were granted during the financial year to take up unissued shares of the Company or any subsidiary.

No shares were issued during the financial year by virtue of the exercise of options to take up unissued shares of the Company or any subsidiary.

There were no unissued shares of the Company or any subsidiary under option at the end of the financial year.

AUDIT COMMITTEEThe Audit Committee at the end of the financial year comprises the following members:


All members of the Audit Committee were non-executive directors.

The Audit Committee performs the functions set out in Section 201B(5) of the Companies Act, Cap. 50, the SGX Listing Manual and the Code of Corporate Governance. In performing those functions, the Audit Committee reviewed the following:

(i) overall scope of both the internal and external audits and the assistance given by the Company’s officers to the auditor. It met with the Company’s internal and external auditors to discuss the results of their respective examinations and their evaluation of the Company’s system of internal accounting controls;

(ii) the audit plan of the Group’s independent auditor and any recommendations on internal accounting controls arising from the statutory audit;

(iii) the quarterly financial information and the statement of financial position of the Company and the consolidated financial statements of the Group for the financial year ended 31 December 2011 as well as the independent auditor’s report thereon; and

(iv) interested person transactions (as defined in Chapter 9 of the Listing Manual of the Singapore Exchange).

The Committee has full access to management and is given the resources required for it to discharge its functions. It has full authority and the discretion to invite any director or executive officer to attend its meetings. The Committee also recommends the appointment of the external auditor and reviews the level of audit and non-audit fees.

The Committee is satisfied with the independence and objectivity of the external auditor and has recommended to The Board of Directors that the auditor, Foo Kon Tan Grant Thornton LLP, be nominated for re-appointment as auditor at the forthcoming Annual General Meeting of the Company.

INDEPENDENT AUDITORThe independent auditor, Foo Kon Tan Grant Thornton LLP, Certified Public Accountants, has expressed its willingness to accept re-appointment.



OTHER INFORMATION REQUIRED BY THE SGX-STMaterial informationApart from the Service Agreements between the executive directors and the Company, there are no material contract to which the Company or its subsidiaries, is a party which involve directors’ interests subsisted or have been entered into during the financial year.

Interested person transactionsThere were no interested person transactions as defined in Chapter 9 of SGX-ST Manual conducted during the financial year except as disclosed under “Interested Person Transactions” on “Corporate Governance”.

On behalf of the Directors

FAN DENG CHAODIRECTOR

ZHANG LIU CHENGDIRECTOR

Dated: 5 April 2012

STATEMENT BY DIRECTORSFor the fi nancial year ended 31 December 2011


In the opinion of the directors, the accompanying statements of financial position, consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows, together with the notes thereon, are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2011 and of the results of the business, changes in equity and cash flows of the Group for the financial year ended on that date, and at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the Directors

FAN DENG CHAODIRECTOR

ZHANG LIU CHENGDIRECTOR

Dated: 5 April 2012

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SINOSTAR PEC HOLDINGS LIMITED


REPORT ON THE FINANCIAL STATEMENTSWe have audited the accompanying financial statements of Sinostar PEC Holdings Limited (“the Company”) and its subsidiaries (“the Group”), which comprise the statements of financial position of the Group and the Company as at 31 December 2011, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows of the Group for the financial year then ended, and a summary of significant accounting policies and other explanatory information.

MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTSManagement is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the “Act”) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets.

AUDITOR’S RESPONSIBILITYOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINIONIn our opinion, the consolidated financial statements of the Group and the statement of financial position of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2011, and the results, changes in equity and cash flows of the Group for the financial year ended on that date.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SINOSTAR PEC HOLDINGS LIMITED


REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSIn our opinion, the accounting and other records required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act.

Foo Kon Tan Grant Thornton LLPPublic Accountants andCertified Public Accountants

Singapore, 5 April 2012

STATEMENTS OF FINANCIAL POSITIONAs at 31 December 2011


The Company The Group

Note31 December

201131 December

201031 December

201131 December

2010

RMB’000 RMB’000 RMB’000 RMB’000

ASSETSNon-currentProperty, plant and equipment 5 – – 482,974 501,291Subsidiaries 6 250,041 250,041 – –

250,041 250,041 482,974 501,291

CurrentInventories 7 – – 48,234 11,294Trade and other receivables 8 – 5 81,884 56,943Amount owing by a subsidiary 6 51,261 54,899 – –Amount owing by related parties 9 – – – 925Cash and bank balances 10 1,857 1,569 376,727 405,888

53,118 56,473 506,845 475,050

Total assets 303,159 306,514 989,819 976,341

EQUITY AND LIABILITIESCapital and ReservesShare capital 11 316,125 316,125 316,125 316,125Reserves 12 (17,611) (14,169) 316,750 326,367

298,514 301,956 632,875 642,492

Non-controlling interests – – 217,716 236,198

Total equity 298,514 301,956 850,591 878,690

LiabilitiesNon-currentDeferred tax liabilities 13 – – – –

CurrentTrade and other payables 14 965 877 51,102 87,283Amount owing to a subsidiary 6 3,680 3,681 – –Amount owing to related parties 15 – – 80,415 2,732Amount owing to holding company 16 – – 1,554 1,554Current tax payable – – 6,157 6,082

4,645 4,558 139,228 97,651

Total equity and liabilities 303,159 306,514 989,819 976,341

The annexed notes form an integral part of and should be read in conjunction with these financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the fi nancial year ended 31 December 2011


Year ended 31 December

2011


2010Note RMB’000 RMB’000

Revenue 4 4,342,155 984,110Cost of sales (4,317,669) (905,469)

Gross profit 24,486 78,641Other income 17(a) 9,522 6,618Distribution costs 17(b) (4,449) (5,002)Administrative expenses 17(c) (28,185) (17,523)Other operating expenses 17(d) (542) (50)

Profit before taxation 18 832 62,684Taxation 19 (a) (12,850) (8,887)

(Loss)/Profit after taxation (12,018) 53,797

Other comprehensive income after tax 19 (b) – –

Total comprehensive (expense)/income for the year (12,018) 53,797

Attributable to:Equity holders of the Company 6,464 58,262Non-controlling interests (18,482) (4,465)

(12,018) 53,797

RMB cents RMB centsEarnings per share 21 – Basic 1.01 9.10 – Diluted 1.01 9.10


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the fi nancial year ended 31 December 2011


Oth

er r

eser

ves

Shar

e ca

pita

l

Stat

utor

y co

mm

on

rese

rve

Vol

unta

ry

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mon

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b-to

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Ret

aine

d pr

ofit

s

Att

ribu

tabl

e to

equ

ity

hold

ers

of t

he

Com

pany

Non

-co

ntro

llin

g in

tere

stTo

tal

RM

B’0

00R

MB

’000

RM

B’0

00R

MB

’000

RM

B’0

00R

MB

’000

RM

B’0

00R

MB

’000

Bal

ance

as

at 1

Jan

uary

201

031

6,12

529

,157

797

29,9

5423

8,15

158

4,23

014

2,66

372

6,89

3C

apit

al c

ontr

ibut

ion

from

non-

cont

roll

ing

inte

rest

s–

––

––

–98

,000

98,0

00To

tal

com

preh

ensi

ve

in

com

e/(e

xpen

se)

for

the

year

––

––

58,2

6258

,262

(4,4

65)

53,7

97Tr

ansf

er t

o st

atut

ory

com

mon

res

erve

–6,

193

–6,

193

(6,1

93)

––

–

Bal

ance

as

at 3

1 D

ecem

ber

2010

316,

125

35,3

5079

736

,147

290,

220

642,

492

236,

198

878,

690

Tota

l co

mpr

ehen

sive

inco

me/

(exp

ense

) fo

r th

e ye

ar–

––

–6,

464

6,46

4(1

8,48

2)(1

2,01

8)20

10 f

irst

and

fin

al t

ax-e

xem

pt

(o

ne-t

ier)

div

iden

d of

0.5

cen

ts p

er s

hare

––

––

(16,

081)

(16,

081)

–(1

6,08

1)Tr

ansf

er t

o st

atut

ory

com

mon

res

erve

–3,

877

–3,

877

(3,8

77)

––

–

Bal

ance

as

at 3

1 D

ecem

ber

2011

316,

125

39,2

2779

740

,024

276,

726

632,

875

217,

716

850,

591

The

anne

xed

note

s fo

rm a

n in

tegr

al p

art

of a

nd s

houl

d be

rea

d in

con

junc

tion

wit

h th

ese

fina

ncia

l st

atem

ents

.

CONSOLIDATED STATEMENT OF CASH FLOW

For the fi nancial year ended 31 December 2011



2011


2010RMB’000 RMB’000

Cash Flows from Operating ActivitiesProfit before taxation 832 62,684Adjustments for:Depreciation of property, plant and equipment 42,024 7,101

Interest income (9,453) (6,142)Loss from disposal of property, plant and equipment 278 –

Operating profit before working capital changes 33,681 63,643Increase in inventories (36,940) (3,192)Increase in operating receivables (24,941) (31,521)Increase in operating payables 81,067 1,853

Cash generated from operations 52,867 30,783Income tax paid (12,775) (7,345)

Net cash generated from operating activities 40,092 23,438

Cash Flows from Investing ActivitiesAcquisition of property, plant and equipment (64,038) (109,923)Cash funds placed with a financial institution 250,000 (250,000)Proceeds from disposal of property, plant and equipment 209 –Interest received 9,453 7,855

Net cash generated from/(used in) investing activities 195,624 (352,068)

Cash Flows from Financing ActivitiesAmount owing by/(to) related parties,net 1,204 (83)Dividends paid (16,081) –Non-controlling interests contribution to capital in a subsidiary – 98,000

Net cash (used in)/generated from financing activities (14,877) 97,917

Net increase/(decrease) in cash and cash equivalents 220,839 (230,713)Cash and cash equivalents at beginning of year 155,888 386,601

Cash and cash equivalents at end of year (Note 10) 376,727 155,888

Note:

Property, plant and equipment

During the financial year, the Group acquired property, plant and equipment with an aggregate cost of RMB24,194,000 (2010 – RMB147,750,000) of which $24,194,000 (2010 – RMB73,864,000) was owing to the suppliers. Cash payments of RMB64,038,000 (2010 – RMB109,923,000) were paid to suppliers for prior year purchases of property, plant and equipment.


NOTES TO THE FINANCIAL STATEMENTSFor the fi nancial year ended 31 December 2011


1 GENERAL INFORMATIONThe financial statements of the Company and of the Group for the year ended 31 December 2011 were authorised for issue in accordance with a resolution of the directors on the date of the Statement By Directors.

The Company was incorporated in the Republic of Singapore on 5 July 2006 as a limited private company under the name of Sinostar PEC Holdings Pte. Ltd. On 31 July 2007, the Company was converted to a public company and changed its name to Sinostar PEC Holdings Limited. The Company was listed on SGX-ST on 26 September 2007.

The Company is domiciled in the Republic of Singapore.

The immediate and ultimate holding company of the Company is Intelligent People Holdings Limited (“Intelligent People”), a company incorporated in the British Virgin Islands (“BVI”).

The registered office is located at 1 Robinson Road, #17-00 AIA Tower, Singapore 048542.

The principal activity of the Company is that of an investment holding company. The principal activities of its subsidiaries are stated in Note 6.

2(a) BASIS OF PREPARATIONThe financial statements are prepared in accordance with Singapore Financial Reporting Standards (“FRS”) including related Interpretations (“INT FRS”) promulgated by the Accounting Standards Council (“ASC”). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below.

The financial statements are presented in Renminbi (“RMB”), which is the Company’s functional currency. All financial information are presented in RMB, rounded to the nearest thousand (RMB’000), unless otherwise stated.

Significant accounting estimates and judgements

The preparation of the financial statements in conformity with FRS requires the use of judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the financial year. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates.

The critical accounting estimates and assumptions used and areas involving a high degree of judgement are described below:

Depreciation of property, plant and equipment (Note 5)

Property, plant and equipment are depreciated on a straight-line basis after deducting the residual value over their estimated useful lives. Management estimates the useful lives of property, plant and equipment to be within 3 to 20 years except for land use rights which are depreciated over the period of the grant of originally 50 years. The carrying amount of the Group’s property, plant and equipment as at 31 December 2011 is RMB482,974,000. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised.

Useful lives of plant and machinery (Note 5)

Plant and machinery are depreciated on a straight-line basis over their estimated economic useful lives. Management estimates the useful lives of these assets to be within 5 to 20 years. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. The carrying amount of the Group’s plant and machinery at the end of reporting period is disclosed in Note 5 to the financial statements. A 10% difference in the expected useful lives of these assets from management’s estimates would result in approximately 4% increase/decrease in the Group’s result for the financial year.



2(a) BASIS OF PREPARATION (CONT’D)Significant accounting estimates and judgements (cont’d)

Income taxes (Note 19 (a))

The Group has exposure to income taxes in numerous jurisdictions. Significant judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Critical judgements and key sources of estimation uncertainty

In the process of applying the entity’s accounting policies, which are described in Note 3, management had made the following judgements that have the most significant effect on the amounts recognised in the consolidated financial statements:

Allowance for inventory obsolescence (Note 7)

The Group reviews the ageing analysis of inventories at each reporting date, and makes provisions for obsolete and slow moving inventory items identified that are no longer suitable for sale. The net realisable value for such inventories are estimated based primarily on the latest invoice prices and current market conditions. Possible changes in these estimates could result in revisions to the valuation of inventories.

If the net realisable value of the inventories increase/decrease by 10% from management’s estimates, the Group’s results will decrease/increase by RMB4,823,000.

Allowance for bad and doubtful debts (Note 8)

Allowances for bad and doubtful debts are based on an assessment of the recoverability of trade and other receivables. Allowances are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of bad and doubtful debts requires the use of judgement and estimates. Where the expected outcome is different from the original estimate, such difference will impact carrying value of trade and other receivables and doubtful debt expenses in the period in which such estimate has been changed.

2(b) INTERPRETATIONS AND AMENDMENTS TO PUBLISHED STANDARDS EFFECTIVE IN 2011On 1 January 2011, the Company adopted the new or amended FRS and INT FRS that are mandatory for application from that date. Changes to the company’s accounting policies have been made as required, in accordance with the transitional provisions in the respective FRS and INT FRS:

FRS 24 Related Party DisclosuresAmendments to FRS 32 Classification of Rights IssuesAmendments to FRS 101 Additional Exemptions for First-time Adopters Limited Exemption

from Comparative FRS 107 Disclosures for First-time AdoptersAmendments to INT FRS 114 Prepayments of a Minimum Funding RequirementAmendments to INT FRS 115 Agreements for the Construction of Real Estate (Accompanying Note)INT FRS 119 Extinguishing Financial Liabilities with Equity InstrumentsGeneral amendments Improvements to FRSs 2010

The adoption of these new or revised FRS and INT FRS did not result in substantial changes to the Group’s and the Company’s accounting policies and had no material effect on the amounts reported for the current or prior financial years.



2(c) FRS AND INT FRS ISSUED BUT NOT YET EFFECTIVEAt the date of authorisation of these financial statements, the following FRS and INT FRS were issued but not yet effective:

No. Title

Effective date – Annual periods

commencing

Framework The Conceptual Framework for Financial Reporting 2010 (Chapters 1 and 3)

1.3.2011

FRS 1 Amendments to FRS 1 – Presentation of Items of Other Comprehensive Income

1.7.2012

FRS 12 Amendments to FRS 12 Deferred Tax: Recovery of Underlying Assets 1.1.2012FRS 19 Employee Benefits 1.1.2013FRS 27 Separate Financial Statements 1.1.2013FRS 28 Investments in Associates and Joint Ventures 1.1.2013FRS 101 Amendments to FRS 101 Severe Hyperinflation and Removal of

Fixed Dates for First-time Adopters1.7.2011

FRS 107 Amendments to FRS 107 Disclosure – Transfers of Financial Assets 1.7.2011FRS 110 Consolidated Financial Statements 1.1.2013FRS 111 Joint Arrangements 1.1.2013FRS 112 Disclosure of Interests in Other Entities 1.1.2013FRS 113 Fair Value Measurements 1.1.2013

The directors do not anticipate that the adoption of these FRS and INT FRS, where relevant to the Company, in future periods will have a material impact on the financial statements of the company in the period of their initial adoption.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESSubsidiaries and principles of consolidation

Consolidation

The financial statements of the Group include the financial statements of the Company and its subsidiaries made up to the end of the financial year. Information on its subsidiaries is given in Note 6.

In preparing the consolidated financial statements, transactions, balances and unrealised gains on transactions between group entities are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests are that part of the net results of operations and of net assets of a subsidiary attributable to the interests which are not owned directly or indirectly by the equity holders of the Company. They are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance sheet. Total comprehensive income is attributed to the non-controlling interests based on their respective interests in a subsidiary, even if this results in the non-controlling interests having a deficit balance.

Business combination

Common control business combination outside the scope of FRS 103

A business combination involving entities under common control is a business combination in which all the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. For such common control business combinations, the merger accounting principles are used to include the assets, liabilities, results, equity changes and cash flows of the combining entities in the consolidated financial statements.



3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)Business combination (cont’d)

Common control business combination outside the scope of FRS 103 (cont’d)

In applying merger accounting, financial statement items of the combining entities or businesses for the reporting year in which the common control combination occurs, and for any comparative years disclosed, are included in the consolidated financial statements of the combined entity as if the combination had occurred from the date when the combining entities or businesses first came under the control of the controlling party or parties.

A single uniform set of accounting policies is adopted by the combined entity. Therefore, the combined entity recognised the assets, liabilities and equity of the combining entities or businesses at the carrying amounts in the consolidated financial statements of the controlling party or parties prior to the common control combination.

The carrying amounts are included as if such consolidated financial statements of the Group had been prepared by the controlling party, including adjustments required for conforming the combined entity’s accounting policies and applying those policies to all years presented. There is no recognition of any goodwill or excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of the common control combination. The effects of all transactions between the combining entities or businesses, whether occurring before or after the combination, are eliminated in preparing the consolidated financial statements of the combined entity.

Changes in the Company owners’ ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the parent.

Acquisition of businesses

From 1 January 2008, the acquisition method of accounting is used to account for business combinations by the Group.

The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary.

Acquisition-related costs are expensed as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.

On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree at the date of acquisition either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill.



3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)Business combination (cont’d)

Disposals of subsidiaries or businesses

When a change in the Company’s ownership interest in a subsidiary results in a loss of control over the subsidiary, the assets and liabilities of the subsidiary including any goodwill are derecognised. Amounts previously recognised in other comprehensive income in respect of that entity are also reclassified to profit or loss or transferred directly to retained earnings if required by a specific Standard.

Any retained equity interest in the entity is remeasured at fair value. The difference between the carrying amount of the retained investment at the date when control is lost and its fair value is recognised in profit or loss.

Transactions with non-controlling interests

Changes in the company’s ownership interest in a subsidiary that do not result in a loss of control over the subsidiary are accounted for as transactions with equity owners of the Group. Any difference between the change in the carrying amounts of the non- controlling interest and the fair value of the consideration paid or received is recognised in a separate reserve within equity attributable to the equity holders of the Company.

Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether there is control.

Shares in subsidiaries are stated at cost less allowance for any impairment losses on an individual subsidiary basis.

Details of its subsidiaries are given in Note 6.

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is computed utilising the straight-line method to write off the cost of the assets after deducting the residual value over the estimated useful lives as follows:

Land use rights 50 yearsBuildings on leasehold land 20 yearsPlant and machinery 5 – 20 yearsElectronic system and equipment 3 – 20 yearsMotor vehicles 4 – 5 yearsOffice equipment 5 years

No depreciation has been provided for construction-in-progress.

The cost of property, plant and equipment includes expenditure that is directly attributable to the acquisition of the items. Dismantlement, removal or restoration costs are included as part of the cost of property, plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the asset. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

Subsequent expenditure relating to property, plant and equipment that have been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the standard of performance of the asset before the expenditure was made, will flow to the Group and the cost can be reliably measured. Other subsequent expenditure is recognised as an expense during the financial year in which it is incurred.



3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)Property, plant and equipment and depreciation (cont’d)

For acquisitions and disposals during the financial year, depreciation is provided from the month after acquisition and to the month of disposal respectively. Fully depreciated property, plant and equipment, if any, are retained in the books of accounts until they are no longer in use.

The depreciation methods, useful lives and residual values of property, plant and equipment are reviewed and adjusted as appropriate at end of each reporting date. The depreciation methods and useful lives are reviewed at each financial year-end to ensure that the method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.

An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the asset is included in the profit or loss in the financial period the asset is derecognised.

Inventories

Inventories are carried at the lower of cost and net realisable value. Cost is determined on a weighted-average basis and includes all costs in bringing the inventories to their present location and condition. In the case of manufactured inventories, cost includes all direct expenditure and production overheads based on the normal level of activity.

Provision is made for obsolete, slow-moving and defective inventories in arriving at the net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sales.

Financial assets

Financial assets include cash and financial instruments. Financial assets, other than hedging instruments, can be divided into the following categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial assets is re-evaluated and classification may be changed at the reporting date with the exception that the designation of financial assets at fair value through profit or loss is not revocable.

All financial assets are recognised on their trade date – the date on which the Company and the Group commits to purchase or sell the asset. Financial assets are initially recognised at fair value, plus directly attributable transaction costs except for financial assets at fair value through profit or loss, which are recognised at fair value.

Derecognition of financial instruments occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at end of each reporting period whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.

Non-compounding interest and other cash flows resulting from holding financial assets are recognised in the income statement when received, regardless of how the related carrying amount of financial assets is measured.

Other than loans and receivables, the Group and the Company do not designate any financial assets at fair value through profit or loss, available-for-sale financial assets or held-to-maturity investment.



3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the end of reporting period. These are classified as non-current assets.

Loans and receivables include trade and other receivables, amount owing by a subsidiary, related party balances and deposits held in banks. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. If there is objective evidence that the asset has been impaired, the financial asset is measured at the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. The impairment or writeback is recognised in profit or loss.

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and deposits with financial institutions which are subject to an insignificant risk of change in value.

For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents include cash on hand and bank deposits net of cash funds placed with financial institutions.

Dividends

Final dividends proposed by the directors are not accounted for in shareholders’ equity as an appropriation of retained profit, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability.

Interim dividends are simultaneously proposed and declared, because the articles of association of the Company grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised directly as a liability when they are proposed and declared.

Financial liabilities

The Group’s financial liabilities include trade payables and other payables and related party balances.

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-related charges are recognised as an expense in “finance costs” in the profit or loss. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.

Gains and losses are recognised in the profit or loss when the liabilities are derecognised as well as through the amortisation process.

Trade and other payables and related party balances are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method.

Dividend distributions to shareholders are included in current financial liabilities when the dividends are payable.



3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)Provisions

Provisions are recognised when the Company and the Group have a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Present obligations arising from onerous contracts are recognised as provisions.

The directors review the provisions annually and where in their opinion, the provision is inadequate or excessive, due adjustment is made.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance costs.

Operating leases

Where the Group is a lessee

Rentals on operating leases are charged to the profit or loss on a straight-line basis over the lease term. Lease incentives, if any, are recognised as an integral part of the net consideration agreed for the use of the leased asset. Penalty payments on early termination, if any, are recognised in the profit or loss when incurred.

Revenue recognition

Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer. Revenue excludes value-added taxes (“VAT”) and is arrived at after deduction of trade discounts, if any. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

Revenue from sale of oil derivatives, propylene, polypropylene and liquefied petroleum gas (“LPG”) products is recognised when goods are sold to customers, which generally coincides with their delivery and acceptance.

Interest income is recognised on a time-apportioned basis using the effective interest method.

Employee benefits

Pension obligations

The Company and the Group participate in the defined contribution schemes as provided by the laws of the countries in which it has operations. In particular, the Singapore incorporated company in the Group contributes to the Central Provident Fund, a defined contribution plan regulated and managed by the Government of Singapore. The contributions to national pension schemes are charged to the profit or loss in the period to which the contributions relate.

Employee leave entitlements

No provision has been made for employee leave entitlements as any unconsumed annual leave not utilised will be forfeited.

Key management personnel

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the entity. Directors and certain general managers are considered key management personnel.



3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)Income taxes

Current income tax for current and prior periods is recognised at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the end of reporting period.

Deferred income tax is recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and affects neither accounting or taxable profit or loss at the time of the transaction.

A deferred income tax liability is recognised on temporary differences arising on investments in subsidiaries, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

A deferred income tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilised.

Deferred income tax is measured:

(i) at the tax rates that are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the date of the financial position; and

(ii) based on the tax consequence that will follow from the manner in which the Group expects, at the date of the financial position, to recover or settle the carrying amounts of its assets and liabilities.

Current and deferred income taxes are recognised as income or expense in the profit or loss, except to the extent that the tax arises from a transaction which is recognised directly in equity.

The Group’s sales of goods in the PRC are subject to VAT at the applicable tax rate of 17% for the PRC domestic sales. Input VAT on purchases can be deducted from output VAT. The net amount of VAT recoverable from, or payable to, the tax authority is included as part of “other receivables” or “other payables” in the consolidated statement of financial position.

Revenue, expenses and assets are recognised net of the amount of VAT except:

(i) where the VAT incurred on a purchase of assets or services is not recoverable from the tax authority, in which case the VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

(ii) receivables and payables that are stated with the amount of VAT included.

Sales tax

Revenues, expenses and assets are recognised net of the amount of sales tax except where the sales tax incurred in a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statements of financial position.

Impairment of non-financial assets

The carrying amounts of the Company’s and the Group’s non-financial assets subject to impairment are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.



3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)Impairment of non-financial assets (cont’d)

If it is not possible to estimate the recoverable amount of the individual asset, then the recoverable amount of the cash-generating unit to which the assets belong will be identified.

For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.

Individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss, if any, is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell and value-in-use, based on an internal discounted cash flow evaluation.

An impairment loss is charged to the profit or loss unless it reverses a previous revaluation in which case it is charged to equity.

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount or when there is an indication that the impairment loss recognised for the asset no longer exists or decreases.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised.

A reversal of an impairment loss is credited as income in the consolidated statement of comprehensive income.

Functional currency

Functional and presentation currency

Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements of the Company and the Group are presented in RMB, which is also the functional currency of the Company and its subsidiaries.

Conversion of foreign currencies

Transactions and balances

Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency using the exchange rates at the dates of the transactions. Currency translation differences from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the end of the reporting period are recognised in the profit or loss.

Non-monetary items measured at fair values in foreign currencies are translated using the exchange rates at the date when the fair values are determined.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the date of the translations.



3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)Financial instruments

Financial instruments carried on the statements of financial position include cash and bank balances, financial assets and financial liabilities. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. These instruments are recognised when contracted for.

Disclosures on financial risk management objectives and policies are provided in Note 25.

Operating segments

For management purposes, operating segments are organised based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers are directly accountable to the chief executive officer who regularly reviews the segment results in order to allocate resources to the segments and to assess segment performance.

4 REVENUERevenue represents sale of oil derivatives, propylene, polypropylene and LPG products, excluding applicable VAT, and is detailed as follows:

2011 2010RMB’000 RMB’000

The Group

Oil derivatives 3,043,554 –Liquefied petroleum gas 760,478 593,118Propylene 104,328 25,858Polypropylene 409,443 365,134Others 24,352 –

4,342,155 984,110

5 PROPERTY, PLANT AND EQUIPMENTElectronic

system and equipment

RMB’000

The Company

CostBalance as at 31 December 2010 and 31 December 2011 19

Accumulated depreciationBalance as at 1 January 2010 15Depreciation for the year 4

Balance as at 31 December 2010 19Depreciation for the year –

Balance as at 31 December 2011 19

Net book valueBalance as at 31 December 2011 –

Balance as at 31 December 2010 –



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5 PROPERTY, PLANT AND EQUIPMENT (CONT’D)The Company The Group2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Depreciation expense charged to: Cost of sales – – 41,816 6,994 Administrative expenses – 4 208 107

– 4 42,024 7,101

Land use rights relate to the following parcel of land:

Location PeriodLand area

(square metre)

山東省東明縣菜園集鄉經濟園區 50 years (expiring on 18/12/2058) 3,109.92

The construction-in-progress relates to the construction of heavy oil conversion facilities including office premises for the extraction of raw LPG and other oil derivatives such as petrol, diesel, gasoline, propylene and heavy fuel oil. The construction of heavy oil conversion facilities was completed during the financial year.

6 SUBSIDIARIES2011 2010

RMB’000 RMB’000

The Company

Unquoted equity investment, at cost 250,041 250,041

Amount owing by a subsidiary 51,261 54,899

Amount owing to a subsidiary (3,680) (3,681)

The amount owing by a subsidiary relates to unsecured advances and accrued interest on the advances, both of which are repayable by 28 November 2012 (2010 – 28 November 2011). Interest is charged at 3% (2010 – 3%) per annum. The carrying value approximates the fair value of the advances.

The amount owing to a subsidiary relates to unsecured advances for costs incurred on Initial Public Offerings. The amount is interest-free and repayable on demand. The carrying value approximates the fair value of the advances.

The amount owing by a subsidiary is denominated in RMB. The amount owing to a subsidiary is denominated in Singapore dollar.



6 SUBSIDIARIES (CONT’D)The subsidiaries are:

Country ofincorporation/ Effectiveprincipal place Cost of percentage of

Name of business investment equity held Principal activities2011 2010 2011 2010

RMB’000 RMB’000

Subsidiary held by the Company

Dongming Hengchang Petrochemical Co., Ltd.(1)

(東明恒昌化工有限公司) (“Dongming Hengchang”)

The People’s Republic of China

250,041 250,041 100% 100% M anufacture and sale of propylene, polypropylene and LPG products

Dongming Runchang Petrochemical Co, Ltd.(1)

(東明潤昌化工有限公司)

The People’s Republic of China

– – 51% 51% M anufacture and sale of LPG and other oil derivatives such as petrol, diesel, gasoline, propylene and heavy fuel oil

250,041 250,041

(1) audited by Foo Kon Tan Grant Thornton LLP for FRS reporting purpose

7 INVENTORIES2011 2010

RMB’000 RMB’000

The Group

Raw materials 2,064 1,885Work-in-progress 6,015 –Finished goods 41,713 9,409

49,792 11,294

Less:Allowance for inventoriesBalance at beginning of the year – –Allowance made during the year (1,558) –

Balance at end of the year (1,558) –

Inventories at net realisable value 48,234 11,294

Inventories charged to: cost of sales (’000) 4,011,362 905,469



8 TRADE AND OTHER RECEIVABLESThe Company The Group2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Trade receivables – – 3,542 5,422VAT receivable – – 75,422 49,544Advances made to suppliers of raw materials – – 1,741 1,532Advances made to suppliers of property, plant and equipment – – 20 21Advances made to staff – – 50 68Advances made to directors – 5 50 13Prepayments – – – 285Deposits – – – –Other taxes receivables – – 277 –Other receivables – – 782 58

– 5 81,884 56,943

The age analysis of trade receivables past due and not impaired is as follows:

The Group2011 2010

RMB’000 RMB’000

Within 1 month 3,542 5,422

The trade receivables past due but not impaired of RMB3,542,000 (2010 – RMB5,422,000) as at 31 December 2011 has been fully settled on 23 February 2012 (2010 – 26 January 2011).

The advances made to suppliers of raw materials are unsecured, interest-free and represent down-payment for the supply of raw materials. The carrying value approximates the fair values.

The advances made to staff and directors are for business purpose. The carrying value approximates the fair values.

Trade and other receivables are dominated in the following currencies:

The Company The Group2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Singapore dollar – 5 – 5Chinese Renminbi – – 81,884 56,938

– 5 81,884 56,943

9 AMOUNT OWING BY RELATED PARTIES2011 2010

RMB’000 RMB’000

The Group

Non-trade – 925

The non-trade amount owing by related parties relates to unsecured advances which were interest-free and fully repaid during the financial year. The carrying value approximates their fair values.



10 CASH AND BANK BALANCESThe Company The Group2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Cash on hand 67 81 108 131Bank balances 1,390 1,064 330,218 115,333Fixed deposits 400 424 46,401 424Cash funds placed with financial institutions – – – 290,000

1,857 1,569 376,727 405,888

For the purpose of the consolidated statement of cash flow, the year end cash and cash equivalents comprise the following:

2011 2010RMB’000 RMB’000

The Group

Cash on hand 108 131Bank balances 330,218 115,333Fixed deposits 46,401 424Cash funds placed with financial institutions – 290,000

376,727 405,888

Less: Cash fund placed with a financial institution for 12 months – (250,000)

376,727 155,888

The fixed deposit which carry interest at 0.48% (2010 – 0.48%) per annum mature within three months from the end of reporting period.

The cash funds placed with financial institutions were placed for varying periods of between 1 and 12 months depending on the immediate cash requirements of the Group. The cash funds at 31 December 2010 matured within 1 to 12 months from the end of reporting period and earned interest at their respective short term deposit rates. The effective interest rate was 1.25% per annum.

Cash and bank balances are denominated in the following currencies:


RMB’000 RMB’000 RMB’000 RMB’000

Singapore dollar 1,838 1,546 1,838 1,546United States dollar 19 21 20 21New Zealand dollar – 2 – 2Chinese Renminbi – – 374,869 404,319

1,857 1,569 376,727 405,888



11 SHARE CAPITAL

No. of shares Amount2011 2010 2011 2010

RMB’000 RMB’000

The Company and The Group

Issued and fully paid, with no par value:Balance at beginning and end of year 640,000,000 640,000,000 316,125 316,125

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings of the Company. All shares rank equally with regard to the Company’s residual assets.

12 RESERVESThe Company The Group2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Other reserves – – 40,024 36,147(Accumulated losses)/retained profits (17,611) (14,169) 276,726 290,220

(17,611) (14,169) 316,750 326,367

2011 2010RMB’000 RMB’000

The Group

Other reserves

Statutory common reserve – Balance as at beginning of year 35,350 29,157 – Transfer from retained profits 3,877 6,193

– Balance as at end of year 39,227 35,350Voluntary common reserve – Balance as at beginning and end of year 797 797

40,024 36,147

According to the current PRC Company Law, the subsidiaries are required to transfer between 5% and 10% of its profit after taxation to statutory common reserve until the statutory common reserve balance reaches 50% of the registered capital. For the purpose of calculating the transfer to this reserve, the profit after taxation shall be the amount determined under the PRC accounting standards. The transfer to this reserve must be made before the distribution of dividends to shareholders.

Statutory common reserve can be used to make good previous year’s losses and for conversion to capital, if any, provided that the balance remains not less than 25% of the registered capital.



13 DEFERRED TAX LIABILITIES2011 2010

RMB’000 RMB’000

The Group

Balance at beginning of year – 265Transfer to profit or loss (Note 19(a)) – (265)

Balance at end of year – –

14 TRADE AND OTHER PAYABLESThe Company The Group2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Trade payables – – 1,964 1,101Accrual for salaries and related costs 327 – 8,661 5,324VAT payable – – – 876Professional fee payables 537 692 537 692Provision for directors’ fees – 179 226 179Other governmental taxes payable – – 3,438 270Amount owing to suppliers of property, plant and equipment – – 34,020 73,864Advances received from customers – – 1,043 3,757Amount owing to directors – – 140 140Amount owing to staff – – 100 –Withholding tax payables 36 – 36 –Amount owing to sundry creditors 65 6 937 1,080

965 877 51,102 87,283

The fair value of trade and other payables have not been disclosed as, due to their short duration, management considers the carrying amounts recognised in the statements of financial position to be reasonable approximation of their fair value.

The advances received from customers represent down-payment for ordering made.

The amount owing to directors is unsecured advances which are interest-free and repayable on demand.

Trade and other payables are denominated in the following currencies:


RMB’000 RMB’000 RMB’000 RMB’000

Singapore dollar 965 877 965 877Chinese Renminbi – – 50,137 86,406

965 877 51,102 87,283



15 AMOUNT OWING TO RELATED PARTIES2011 2010

RMB’000 RMB’000

The Group

Trade– 東明潤邦化工有限公司 50,734 –– 東明中油燃料石化有限公司 29,372 2,702

80,106 2,702

Non-trade– 山東東明石化集團魯班建築有限公司 24 –– 東明縣昌順運輸有限公司 285 30

309 30

80,415 2,732

The non-trade amount owing to related parties represents advances made, is unsecured, interest-free, repayable on demand and denominated in Renminbi. The carrying value approximates their fair values.

16 AMOUNT OWING TO HOLDING COMPANY

The Group

The amount owing to holding company represents advances made, is unsecured, interest-free, repayable on demand and denominated in United States dollar. The carrying value approximates the fair value.

17(a) OTHER INCOME2011 2010

RMB’000 RMB’000

The Group

Interest income – bank (current account) 1,420 2,096 – cash funds 7,625 2,398 – loan 408 1,648

9,453 6,142Exchange gain – 68Miscellaneous income 69 408

9,522 6,618

Effective interest rate (per annum) – bank (current account) 1.91% 1.19% – cash funds 3.04% 1.25% – loan 0.38% 2.15%



17(b) DISTRIBUTION COSTS2011 2010

RMB’000 RMB’000

The Group

Employee benefit costs 2,694 2,774Travelling expenses 6 29Entertainment expenses 69 107Freight charges 1,469 1,865Operating lease rentals 120 –Others 91 227

4,449 5,002

17(c) ADMINISTRATIVE EXPENSES2011 2010

RMB’000 RMB’000

The Group

Depreciation of property, plant and equipment 208 107Directors’ fees 854 697Employee benefit costs 12,030 10,467Exchange loss 964 –Operating lease rentals 585 585Entertainment expenses 1,102 762Travelling expenses 397 473Stamp duty & property tax 841 286Others 11,204 4,146

28,185 17,523

17(d) OTHER OPERATING EXPENSES2011 2010

RMB’000 RMB’000

The Group

Loss on disposal of property, plant and equipment 278 –Bank charges 126 29Others 138 21

542 50



17(e) EMPLOYEE BENEFIT COSTS2011 2010

RMB’000 RMB’000

The Group

Directors’ remuneration – salaries and related costs 1,504 1,537 – defined contributions 56 60Key management personnel (other than directors) – salaries and related costs 1,456 2,385 – defined contributions 299 83Other than directors and key management personnel – salaries and related costs 17,703 11,101 – defined contributions 6,901 2,011

27,919 17,177

As disclosed in: Cost of sales 13,195 3,936 Distribution costs 2,694 2,774 Administrative expenses 12,030 10,467

27,919 17,177

18 PROFIT BEFORE TAXATION2011 2010

Note RMB’000 RMB’000

The Group

Profit before taxation has been arrived at after charging:

Depreciation of property, plant and equipment 5 42,024 7,101Loss on disposal of property, plant and equipment 17(d) 278 –Operating lease rentals 705 585Directors’ fees 17(c) 854 697Exchange loss 17(c) 964 –Allowance for inventories 7 1,558 –Audit fee paid to the auditor of the Company 684 874Audit fee paid to the other auditors 55 96Non-audit fee paid to the auditor of the Company 159 –Non-audit fees paid to other auditors – 51

and (crediting):Exchange gain 17(a) – (68)Interest income 17(a) (9,453) (6,142)



19(a) TAXATION2011 2010

RMB’000 RMB’000

The Group

Current taxation 12,848 9,046Deferred taxation (Note 13) – (265)

12,848 8,781Underprovision of current taxation in respect of prior years 2 106

12,850 8,887

The tax expense on the results of the financial year varies from the amount of income tax determined by applying the relevant statutory rate of income tax on Group’s profits as a result of the following:

2011 2010RMB’000 RMB’000

The Group

Profit before taxation 832 62,684

Tax at statutory rate of 25% (2010 – 25%) 1,704 16,583Tax at statutory rate of 17% (2010 – 17%) (1,017) (620)Tax effect on non-deductible expenses 2,277 3,046Utilisation of deferred tax assets on temporary differences not recognised in previous years – (797)Deferred tax assets on temporary differences not recognised in current years 9,884 –Underprovision in respect of prior years 2 106Tax exemption – (9,431)

12,850 8,887

No provision for Singapore tax has been made as the Company did not derive any significant taxable income in Singapore.

The applicable tax rates of the Group’s subsidiaries in the PRC, Dongming Hengchang and Dongming Runchang for the financial year ended 31 December 2011 are 25% (2010 – 12.5%) and 25% (2010 – 25%) respectively.

The Group has unabsorbed tax losses amounting to approximately RMB37,585,000 (2010 – RMB Nil), which are subject to agreement with the relevant tax authorities. These unabsorbed tax losses can be carried forward for offsetting against future taxable income provided that the provisions of the relevant tax legislations are complied with. These unabsorbed losses cannot be allowed to offset the taxable profits of other subsidiaries.

Deferred tax assets have not been recognised in respect of the unutilised tax benefits of RMB9,396,000 (2010 – RMB Nil) arising from these unabsorbed tax losses because it is not probable that future taxable profits will be available against which the Group can utilise the benefits.

As at the reporting date, no deferred tax liability has been recognised on the unremitted earnings of the PRC subsidiaries from the financial year 2008, as the company is entitled to the tax exemption for foreign sourced income under the Singapore Income Tax Act.

19(b) OTHER COMPREHENSIVE INCOME AFTER TAXThe Group did not generate other comprehensive income for the financial years ended 31 December 2011 and 2010.



20 RETIREMENT BENEFIT PLANSThe eligible employees of the Group, who are citizens of the PRC, are members of a state-managed retirement benefit scheme operated by the local government. The Group is required to contribute a certain percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to the consolidated statement of comprehensive income for the financial year representing defined contribution national pension plan is:

2011 2010RMB’000 RMB’000

The Group 7,194 2,085

21 EARNINGS PER SHAREThe Group

The basic earnings per share is calculated on the Group’s profit after taxation attributable to equity holders of the Company of RMB6,464,000 (2010 – RMB58,262,000) on the weighted average number of ordinary shares in issue of 640,000,000 (2010 – 640,000,000) shares during the financial year.

The diluted earnings per share is calculated on the Group’s profit after taxation attributable to equity holders of the Company of RMB6,464,000 (2010 – RMB58,262,000) on the weighted average number of ordinary shares in issue of 640,000,000 (2010 – 640,000,000) shares during the financial year.

There are no dilutive potential ordinary shares that were outstanding during the year.

22 COMMITMENTS22.1 Operating lease commitments (non-cancellable)

At the end of reporting period, the Group was committed to making the following lease rental payments under non-cancellable operating leases for leasehold land, office building and offices:


RMB’000 RMB’000 RMB’000 RMB’000

Not later than one year – – 585 585Later than one year and not later than five years – – 2,338 2,338Later than five years – – 12,066 12,651

The lease on the Group’s leasehold land with an area of 48,653.3 sq. m on which rental is payable for the parcel of land located at 27 Huanghe Road, Dongming County, Shandong Province, PRC (中華人民共和國山東省東明縣黃河路27號) will expire in 2053. The current rent payable on the lease is RMB197,000 per annum.

The lease on the Group’s leasehold land with an area of 91,823.6 sq. m on which rental is payable for the parcel of land located at 山東省東明縣菜園集鄉經濟園區 will expire in 2030. The current rent payable on the lease is RMB371,000 per annum.

The leases on the Group’s office building and offices on which rentals are payable will expire between 31 December 2025, the earliest date, and 1 May 2026, the latest date. The current rents payable on the leases are between RMB1,800 and RMB12,000 per annum.



22 COMMITMENTS (CONT’D)22.2 Purchase commitments

At the end of reporting period, the Group entered into purchase commitment for the supply of LPG materials from the following supplier:

– 東明中油燃料石化有限公司 26 April 2006 to 25 April 2026

The ordering quantities are on the basis of as and when required for which the pricing is based on the prevailing market rate.

23 SIGNIFICANT RELATED PARTY TRANSACTIONSOther than the related party information disclosed elsewhere in the consolidated financial statements, the following are significant related party transactions entered into between the Group and its related parties at terms agreed between the parties:

2011 2010RMB’000 RMB’000

The Group

Sales to related parties – 東明縣石油經銷公司 3,170,581 – – 東明中油燃料石化有限公司 233,194 52 – 山東東明石化集團恒基化工有限公司 147,821 92,960 – 東明潤邦化工有限公司 18,447 202 – 東明縣昌順運輸有限公司 5,667 5,728 – 山東東明石化集團滙澤有限公司 1,149 – – 山東東明石化集團有限公司 24 –

Purchases from related parties – 東明中油燃料石化有限公司 3,587,136 661,241 – 山東東明石化集團有限公司 232,612 – – 山東東明石化集團滙澤有限公司 101,622 – – 東明縣昌順運輸有限公司 3,398 2,133

Maintenance fee charged by – 東明中油燃料石化有限公司 962 992 – 山東東明石化集團有限公司 305 180

Rental fee charged by related parties – 山東東明石化集團有限公司 209 209 – 東明潤邦化工有限公司 371 371 – 東明縣石油經銷公司 120 – – 東明中油燃料石化有限公司 5 5

Interest charged to – 東明中油燃料石化有限公司 408 1,648

Construction cost charged to – 東明潤邦化工有限公司 468 563 – 山東東明石化集團恒基化工有限公司 11 57 – 山東東明石化集團魯班建築有限公司 11 – – 山東東明石化集團滙澤有限公司 10 – – 東明潤澤化工有限公司 6 –



23 SIGNIFICANT RELATED PARTY TRANSACTIONS (CONT’D)2011 2010

RMB’000 RMB’000

The Group (cont’d)

Construction cost charged by – 山東東明石化集團恒基化工有限公司 37 – – 東明潤邦化工有限公司 2,667 3,337 – 東明石化集團魯班建築有限公司 549 159 – 東明中油燃料石化有限公司 1,049 14 – 山東東明石化集團有限公司 13 –

Utility charged by – 東明潤邦化工有限公司 46,051 – – 山東東明石化集團有限公司 20,279 25,777 – 東明中油燃料石化有限公司 4,605 – – 東明縣石油經銷公司 87 –

Sales of property, plant and equipment to – 山東東明石化集團恒基化工有限公司 2 –

Other expense charged by – 東明中油燃料石化有限公司 – 5,820 – 山東東明石化集團魯班建築有限公司 635 568 – 東明石化集團安裝實業公司 1,657 731 – 山東東明石化集團有限公司 165 – – 東明縣昌順運輸有限公司 2,157 –

Property, plant and equipment purchased from – 東明潤邦化工有限公司 3,699 –

Processing fee charged by – 東明中油燃料石化有限公司 49,653 – – 東明潤邦化工有限公司 46,427 – – 山東東明石化集團滙澤有限公司 8,036 –

Related parties refer to companies with common director.

24 DISCLOSURE OF DIRECTORS’ REMUNERATION2011 2010 RMB’000

Number of directors

RMB750,000 to RMB1,000,000 1 1RMB500,000 to RMB749,999 1 1RMB250,000 to RMB499,999 – –Below RMB250,000 4 4



25 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe Group has documented financial risk management policies. These policies set out the Group’s overall business strategies and its risk management philosophy. The Group is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks included foreign currency risk, interest rate risk, credit risk, liquidity risk and market price risk.

The board of directors meets periodically to analyse and formulate measures to manage the Group’s exposure to market risk, including principally changes in interest rates and currency exchange rates. Generally, the Group employs a conservative strategy regarding its risk management. As the Group’s exposure to market risk is kept at a minimum level, the Group has not used any derivatives or other instruments for hedging purposes. The Group does not hold or issue derivative financial instruments for trading purposes.

The Group’s financial instruments carried on the statements of financial position include cash and bank balances, receivables and payables.

25.1 Foreign currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises when transactions are denominated in foreign currencies.

The Group has minimal monetary balances denominated in Singapore dollar. Accordingly, the exposure to foreign exchange risk is minimal. In addition, the Group’s operational activities are mainly carried out in RMB. The risk arising from movements in foreign exchange rates is minimised as the Group has minimal transactions in foreign currency.

Exposure to foreign currency risk is insignificant as the Group’s income and related expenses, assets and liabilities are substantially denominated in the respective functional currencies of the Group entities, which is RMB. The exposure is monitored on an ongoing basis and the Group endeavours to keep the net exposure at an acceptable level.

25.2 Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Group’s exposure to interest rate risk relates principally to its bank deposits and cash funds placed with financial institutions. The Group does not have any borrowings which are subject to effects of reasonably possible changes to interest rates.

No sensitivity analysis is prepared as management does not foresee an uptrend in the current low interest rate and its risk is considered minimal. Management does not expect any material effect on the Group’s profit or loss arising from the effects of reasonably possible changes to interest rates on its short-term deposits placed with financial institutions at the end of reporting period.

25.3 Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the Group to incur a financial loss. The Group’s exposure to credit risk arises primarily from trade and other receivables. The Group adopts the policy of dealing only with customers of appropriate credit history, and obtaining sufficient security where appropriate to mitigate credit risk. For other financial assets, the Company and the Group adopt the policy of dealing only with high credit quality counterparties.

The Company’s and the Group’s objective is to seek continual growth while minimising losses incurred due to increased credit risk exposure.

As the Company and the Group do not hold any collateral, the maximum exposure to credit risk for each class of financial instruments is the carrying amount of that class of financial instruments presented on the statement of financial position.

Further details of credit risks on trade and other receivables are disclosed in Note 8.



25 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)25.4 Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value.

The Group manages its liquidity risk by ensuring the availability of adequate funds to meet all its obligations in a timely and cost-effective manner.

The table below analyses the maturity profile of the Group’s and the Company’s financial liabilities based on contractual undiscounted cash flows:

Less than1 year

Between2 and 5 years Total

RMB’000 RMB’000 RMB’000

The Group

As at 31 December 2011Trade and other payables 51,102 – 51,102Amount owing to related parties 80,415 – 80,415Amount owing to holding company 1,554 – 1,554

133,071 – 133,071

Less than1 year


RMB’000 RMB’000 RMB’000

The Group

As at 31 December 2010Trade and other payables 87,283 – 87,283Amount owing to related parties 2,732 – 2,732Amount owing to holding company 1,554 – 1,554

91,569 – 91,569

Less than1 year


RMB’000 RMB’000 RMB’000

The Company

As at 31 December 2011Trade and other payables 965 – 965Amount owing to a subsidiary 3,680 – 3,680

4,645 – 4,645



25 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)25.4 Liquidity risk (cont’d)

Less than1 year


RMB’000 RMB’000 RMB’000

The Company

As at 31 December 2010Trade and other payables 877 – 877Amount owing to a subsidiary 3,681 – 3,681

4,558 – 4,558

25.5 Market price risk

Price risk is the risk that the value of a financial instrument will fluctuate due to changes in market prices.

The Group does not hold any quoted or marketable financial instrument, hence is not exposed to any movement in market prices.

26 CONTINGENT LIABILITIESThe Group has not incurred any expenditure for environmental remediation, is currently not involved in any environmental remediation, and has not accrued any amounts for environmental remediation relating to its operations. Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. The PRC government may move further towards more rigorous enforcement of applicable laws, and towards the adoption of more stringent environmental standards. The outcome of environmental liabilities under proposed or future environmental legislation cannot be reasonably estimated at present and hence not provided for but which could be material.

27 OPERATING SEGMENTSFor management purposes, the Group is organised into business units based on their products and services, and has three reportable operating segments as follows:

1. The oil derivatives segment is the manufacturing and sales of oil derivative.

2. The gas separation segment is the manufacturing and sales of LPG, propylene and polypropylene.

3. The other segment is the sales of steam to its related parties.

Except as indicated above, no operating segments have been aggregated to form the above reportable operating segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects, as explained in the table below, is measured differently from operating profit or loss in the consolidated statement of comprehensive income. Distribution costs, administrative expenses, other operating expenses and income taxes are managed on a group basis and are not allocated to operating segments.



27 OPERATING SEGMENTS (CONT’D)Allocation basis and transfer pricing

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly other income, expenses and income tax expense.

The allocation of the group assets and liabilities as well as the revenues and profits and other material segmental items thereon attributable to individual segments is not presented as the information is not provided to the chief operating decision maker. Most of the business is operated under the subsidiaries in the PRC, Dongming Hengchang and Dongming Runchang, where the customers and suppliers are common to the individual segments.

Transfer prices between operating segments are at terms agreed between the parties.

(a) By business

Gas OilSeparation derivatives Others The Group

2011 2010 2011 2011 2011 2010Continuing operations RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

REVENUE:

External customers 1,536,771 984,110 3,043,554 24,352 4,604,677 984,110Inter-segment sales (262,522) – – – (252,522) –

Total revenue 1,274,249 984,110 3,043,554 24,352 4,342,155 984,110

Results

Segment results 74,253 78,641 (73,643) 23,876 24,486 78,641

Unallocated expenses:Unallocated corporate expenses (33,107) (22,099)

(Loss)/Profit from operations (8,621) 56,542Finance income 9,453 6,142

Profit before taxation 832 62,684Taxation (12,850) (8,887)

(Loss)/Profit after taxation (12,018) 53,797

(b) Geographical information

No information on geographical information is presented as the principal operation of the Group relates entirely to the manufacture and sale of oil derivatives, propylene, polypropylene and LPG products entirely in the PRC.



28 CRITICAL ACCOUNTING ESTIMATESEstimates are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completed and selling expenses. These estimates are based on the current market condition and the historical expense of selling products of “similar nature”. It could change significantly as a result of competitors in response to severe industry’s cycles.

29 CAPITAL MANAGEMENTThe Group’s objectives when managing capital are:

(a) To safeguard the Group’s ability to continue as a going concern;

(b) To support the Group’s stability and growth;

(c) To provide capital for the purpose of strengthening the Group’s risk management capability; and

(d) To provide an adequate return to shareholder.

The Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholders’ returns, taking into consideration the future capital requirements of the Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. The Group currently does not adopt any formal dividend policy.

The Group monitors capital on the basis of the carrying amount of equity less cash and cash equivalents as presented in the statement of financial position.

There were no changes in the Group’s approach to capital management during the year. The Company and the Group are not subject to externally imposed capital requirements.

The primary objectives of the Group’s capital management are to ensure that it maintains a strong credit rating and to maintain an optimal capital structure to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares or convertible loan. No changes were made in the objectives, policies or processes during the years ended 31 December 2011 and 31 December 2010.

30 FINANCIAL INSTRUMENTSFair values

The carrying amount of financial assets and liabilities with a maturity of less than one year is assumed to approximate their fair values.

However, the Company and the Group do not anticipate that the carrying amounts recorded at end of reporting period would be significantly different from the values that would eventually be received or settled.

STATISTICS OF SHAREHOLDINGS80 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011

Shareholdings Statistics as at 16 March 2012

Number of shares : 640,000,000Class of shares : Ordinary shares fully paidVoting rights : One vote of each ordinary share

DISTRIBUTION OF SHAREHOLDINGS

Range of Shareholdings No. of Shareholders % No. of Shares %

1 – 999 0 0.00 0 0.001,000 – 10,000 1,721 48.85 11,579,000 1.8110,001 – 1,000,000 1,785 50.67 91,755,000 14.341,000,001 and above 17 0.48 536,666,000 83.85

3,523 100.00 640,000,000 100.00

SHAREHOLDINGS HELD IN HANDS OF PUBLIC

Based on information available to the Company as at 16 March 2012, approximately 42.90% of the issued ordinary shares of the Company is held by the public and therefore Rule 723 of the Listing Manual issued by SGX-ST is complied with.

TOP 20 SHAREHOLDERS

No. Name of Shareholder No. of Shares %

1 Intelligent People Holdings Limited 329,996,000 51.562 HSBC (Singapore) Nominees Pte Ltd 74,068,000 11.573 UOB Kay Hian Pte Ltd 58,524,000 9.144 Phillip Securities Pte Ltd 44,197,000 6.915 CIMB Securities (S) Pte Ltd 4,871,000 0.766 See Gim Tee or Sei Kim Hoe 3,674,000 0.577 DBS Nominees Pte Ltd 2,890,000 0.458 Hong Leong Finance Nominees Pte Ltd 2,875,000 0.459 United Overseas Bank Nominees Pte Ltd 2,674,000 0.42

10 DBS Vickers Securities (S) Pte Ltd 2,572,000 0.4011 Heng Kheng Long or Cynthia Poa Kheng Bee 2,095,000 0.3312 Royal Bank Of Canada (Asia) Ltd 1,991,000 0.3113 Maybank Kim Eng Securities Pte Ltd 1,610,000 0.2514 OCBC Nominees Singapore Pte Ltd 1,325,000 0.2115 Chuah Poh Tin 1,200,000 0.1916 Tang Kay Heng 1,077,000 0.1717 OCBC Securities Private Ltd 1,027,000 0.1618 Aw Yong Sai Chin 1,000,000 0.1619 DB Nominees (S) Pte Ltd 910,000 0.1420 See Gim Tee 805,000 0.13

539,381,000 84.28

STATISTICS OF SHAREHOLDINGSSINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 81

SUBSTANTIAL SHAREHOLDERS(PLEASE REFER TO THE REGISTER OF SUBSTANTIAL SHAREHOLDERS)

No. of SharesDirect Interests Deemed Interests %

Intelligent People Holdings Limited(1) 329,996,000 – 51.56Yoof Investments Limited 35,030,000 – 5.47Li Xiang Ping(1) – 329,996,000 51.56

Note:

(1) Li Xiang Ping is deemed to be interested in 329,996,000 shares held by Intelligent People Holdings Limited by virtue of Section 7 of the Companies Act, Cap. 50.

NOTICE OF ANNUAL GENERAL MEETING82 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011

NOTICE IS HEREBY GIVEN that the Annual General Meeting of Sinostar PEC Holdings Limited the “Company”) will be held at Marina Mandarin Singapore,6 Raffles Boulevard, Marina Square, Singapore 039594, Vanda 6, Level 6 on Thursday, 26 April 2012 at 9.00 a.m. for the purpose of transacting the following businesses:

As Ordinary Business:

1. To receive and adopt the Directors’ Report and Audited Accounts for the financial year ended 31 December 2011 and the Auditors’ Report thereon. (Resolution 1)

2. To re-elect the following Directors retiring pursuant to the Company’s Articles of Association:

Mr Fan Deng Chao (Article 104) (Resolution 2) Mr Li Xiang Ping (Article 104) (Resolution 3) Mr Wu Guo Zhi (Article 114) (Resolution 4) (See Explanatory Note 1)

3. To approve the payment of Directors’ Fees of S$40,000 for the financial year ended 31 December 2011. (See Explanatory Note 2) (Resolution 5) 4. To approve the payment of Directors’ Fees of S$220,000 for the financial year ending 31 December 2012, to

be paid quarterly in arrears. (Resolution 6)

5. To re-appoint Foo Kon Tan Grant Thornton LLP as the Auditors of the Company and to authorise the Directors to fix their remuneration. (Resolution 7)

6. To transact any other ordinary business which may properly be transacted at an annual general meeting.

As Special Business:

To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions, with or without any modifications:

7. Authority to allot and issue shares in the capital of the Company (“Shares”) – Share Issue Mandate

“That, pursuant to Section 161 of the Companies Act, Chapter 50 of Singapore (the “Companies Act”) and Rule 806 of the Listing Manual (the “Listing Manual”) of the Singapore Exchange Securities Trading Limited

(“SGX-ST”), the Directors of the Company be authorized and empowered to:

(A) (i) issue Shares in the Company whether by way of rights, bonus or otherwise; and/or

(ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require Shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) options, warrants, debentures or other instruments convertible into Shares,

at any time and upon such terms and conditions and for such purposes and to such persons as the Directors of the Company shall in their absolute discretion deem fit; and

(B) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue Shares in pursuance of any Instrument made or granted by the Directors while this Resolution was in force,

NOTICE OF ANNUAL GENERAL MEETINGSINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 83

provided that:

(1) the aggregate number of Shares (including Shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution) and convertible securities to be issued pursuant to this Resolution shall not exceed fifty per cent. (50%) of the total number of issued Shares (excluding treasury shares) in the capital of the Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of Shares and convertible securities to be issued other than on a pro-rata basis to the shareholders of the Company shall not exceed twenty per cent. (20%) of the total number of issued Shares (excluding treasury shares) in the capital of the Company (as at the time of passing of this Resolution);

(2) (subject to such calculation as may be prescribed by the SGX-ST) for the purpose of determining the aggregate number of Shares and convertible securities that may be issued under sub-paragraph (1) above on a pro-rata basis, the total number of issued Shares (excluding treasury shares) in the capital of the Company shall be based on the total number of issued Shares (excluding treasury shares) in the capital of the Company at the time of the passing of this Resolution, after adjusting for:

(a) new Shares arising from the conversion or exercise of convertible securities;

(b) new Shares arising from exercising share options or vesting of share awards outstanding or subsisting at the time of the passing of this Resolution, provided the options or awards were granted in compliance with the rules of the Listing Manual of the SGX-ST; and

(c) any subsequent bonus issue, consolidation or subdivision of Shares.

(3) in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of the Listing Manual of the SGX-ST as amended from time to time (unless such compliance has been waived by the SGX-ST) and the Articles of Association of the Company; and

(4) unless revoked or varied by the Company in a general meeting, such authority shall continue in force until the conclusion of the next annual general meeting of the Company or the date by which the next annual general meeting is required by law to be held, whichever is the earlier.”

(See Explanatory Note 3) (Resolution 8)

By Order Of The Board

Tay Wei ShyanCompany Secretary

Singapore, 11 April 2012

NOTICE OF ANNUAL GENERAL MEETING84 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011

Explanatory Notes:

1. Mr Li Xiang Ping is a Non-Executive Chairman of the Company. He also serves as a member of the Audit Committee, Nominating Committee and Remuneration Committee. Upon his re-election, Mr Li Xiang Ping will continue to serve as a member of the Audit Committee, Nominating Committee and Remuneration Committee.

2. The Company had approved the payment of Directors’ fee of S$140,000 for the financial year ended 31 December 2011 at last annual general meeting held on 27 April 2011.

The Remuneration Committee and the Directors have recommended the payment of an additional Directors’ fee of S$40,000 for the financial year ended 31 December 2011 to the non-executive Directors.

3. The Ordinary Resolution 8 proposed in item 7 above, if passed, will empower the Directors of the Company to issue Shares, make or grant instruments convertible into Shares and to issue Shares pursuant to such instruments, up to a number not exceeding, in total, 50% of the total number of issued Shares (excluding treasury shares) in the capital of the Company, of which up to 20% may be issued other than on a pro-rata basis to shareholders.

For determining the aggregate number of Shares that may be issued on a pro-rata basis, the total number of issued Shares (excluding treasury shares) will be calculated based on the total number of issued Shares (excluding treasury shares) in the capital of the Company at the time this Ordinary Resolution is passed after adjusting for new Shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time when this Ordinary Resolution is passed and any subsequent bonus issue, consolidation or subdivision of Shares. In determining the 20% which may be issued other than on a pro-rata basis, the total number of issued Shares (excluding treasury shares) will be calculated based on the total number of issued Shares (excluding treasury shares) in the capital of he Company at the time the Ordinary Resolution 8 is passed.

Notes:

(i) A Member of the Company entitled to attend and vote at the Annual General Meeting may appoint not more than two proxies to attend and vote instead of him.

(ii) Where a member appoints two proxies, he shall specify the proportion of his shareholding to be represented by each proxy in the instrument appointing the proxies. A proxy need not be a member of the Company.

(iii) If the member is a corporation, the instrument appointing the proxy must be under its common seal or the hand of its attorney or a duly authorised officer.

(iv) The instrument appointing a proxy must be deposited at the registered office of the Company at 1 Robinson Road, #17-00 AIA Tower, Singapore 048542 not less than 48 hours before the time appointed for holding the Annual General Meeting.

PROXY FORMANNUAL GENERAL MEETING

SINOSTAR PEC HOLDINGS LIMITEDCompany No. 200609833N(Incorporated in Singapore with limited liabilities)

I/We, (Name)

of (Address)

being a member/members of SINOSTAR PEC HOLDINGS LIMITED (the “Company”), hereby appoint:

Name Address NRIC/Passport No.Proportion of

Shareholdings %

and/or (delete as appropriate)

Name Address NRIC/Passport No.Proportion of

Shareholdings %

or failing him/her, the Chairman of the Meeting as my/our proxy/proxies to vote for me/us on my/our behalf at the Annual General Meeting (“Meeting”) of the Company to be held on Thursday, 26 April 2012, at 9.00 a.m. at Marina Mandarin Singapore, 6 Raffles Boulevard, Marina Square, Singapore 039594, Vanda 6, Level 6 and at any adjournment thereof. I/We direct my/our proxy/proxies to vote on the business before the Meeting as indicated below. If no specific direction as to voting is given, the proxy/proxies will vote or abstain from voting at his/her discretion, as he/she will on any other matter arising at the Meeting:

No. Resolutions relating to: For Against

1. Directors’ Report and Audited Accounts for the year ended 31 December 2011

2. Re-election of Mr Fan Deng Chao as a Director

3. Re-election of Mr Li Xiang Ping as a Director

4. Re-election of Mr Wu Guo Zhi as a Director

5. Approval of the payment of Directors’ Fees of S$40,000 for the financial year ended 31 December 2011

6. Approval of the payment of Directors’ Fees of S$220,000 for the financial year ending 31 December 2012, to be paid quarterly in arrears

7. Re-appointment of Foo Kon Tan Grant Thornton LLP as Auditors

8. Authority to allot and issue shares in the capital of the Company – Share Issue Mandate

(Please indicate with a cross [X] in the space provided whether you wish your vote to be cast for or against the Resolutions as set out in the Notice of the Meeting).

Dated this day of 2012

Signature(s) of Shareholder(s) orCommon Seal of Corporate Shareholder

IMPORTANT: PLEASE READ NOTES OVERLEAF

IMPORTANT:1. For investors who have used their CPF monies to buy shares

in the capital of Sinostar PEC Holdings Limited, this Annual Report is forwarded to them at the request of the CPF Approved Nominees and is sent solely FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them.

TOTAL NUMBER OF SHARES IN:

(a) CDP Register

(b) Register of Members

Notes:

1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint one or two proxies to attend and vote in his stead.

2. Where a member appoints more than one proxy, the proportion of the shareholding to be represented by each proxy shall be specified in this proxy form. If no proportion is specified, the Company shall be entitled to treat the first named proxy as representing the entire shareholding and any second named proxy as an alternate to the first named or at the Company’s option to treat this proxy form as invalid.

3. A proxy need not be a member of the Company.

4. Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Cap. 50 of Singapore), you should insert that number of shares. If you have shares registered in your name in the Register of Members of the Company, you should insert that number of shares. If you have shares entered against your name in Depository Register and registered in your name in the Register of Members, you should insert the aggregate number of shares. If no number is inserted, this proxy from will be deemed to relate to all the shares held by you.

5. This proxy form must be deposited at the Company’s registered office at 1 Robinson Road, #17-00 AIA Tower, Singapore 048542 not less than 48 hours before the time set for the Meeting.

6. This proxy form must be under the hand of the appointor or of his attorney duly authorised in writing. Where this proxy form is executed by a corporation, it must be executed either under its common seal or under the hand of its attorney or a duly authorised officer.

7. Where this proxy form is signed on behalf of the appointor by an attorney, the letter or power of attorney or a duly certified copy thereof must (failing previous registration with the Company) be lodged with this proxy form, failing which this proxy form shall be treated as invalid.

General:

The Company shall be entitled to reject a Proxy Form which is incomplete, improperly completed, illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified on the Proxy Form. In addition, in the case of shares entered in the Depository Register, the Company may reject a Proxy Form if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company.

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WE ARE SINOSTAR PEC HOLDINGS LIMITED

With a comprehensive production process and the right infrastructure to carry out seamless operations,

we have been successful in being a trusted producer and supplier of oil and petrochemical products in our network in the PRC, serving growth markets in strategic proximity to our nationwide footprint.

CORPORATE INFORMATION

Board of DirectorsLi Xiang Ping (Non-Executive Chairman)Fan Deng Chao (Chief Executive Officer and Executive Director)Zhang Liu Cheng (Executive Director)Lee Gee Aik (Independent Non-Executive Director)Teo Moh Gin (Independent Non-Executive Director)Wu Guozhi (Non-executive Director)

Audit CommitteeLee Gee Aik (Chairman)Teo Moh GinLi Xiang Ping

Remuneration CommitteeTeo Moh Gin (Chairman)Lee Gee AikLi Xiang Ping

Nominating CommitteeLee Gee Aik (Chairman)Teo Moh GinLi Xiang Ping

SecretaryTan Wei Shyan, LLB

Company Registration Number200609833N

Registered Office1 Robinson Road,#17-00 AIA TowerSingapore 048542

Principal Place of Business27 Huanghe Road, Dongming CountyShandong Province, PRC 274500Tel: (86) 530 6259492Fax: (86) 530 7286492

Share RegistrarM & C Services Private Limited138 Robinson Road#17-00, The Corporate OfficeSingapore 068906

AuditorFoo Kon Tan Grant Thornton, LLP47 Hill Street, #05-01Singapore Chinese Chamber of Commerce &Industry BuildingSingapore 179365(Partner-in-charge: Tei Tong Huatappointed since FY2011)

Legal Advisers to the Company on PRC LawQindao Law Firm22F, Northern Tower, Golden Square20 Hong Kong Road(M), Qingdao CityShandong ProvincePRC 266071

Principal BankersChina Construction BankDongming BranchNo. 10, Jie Fang RoadDongming County, Shandong ProvincePRC 274500

Bank of ChinaDongming BranchWusi Road East WingDongming County, Shandong ProvincePRC 274500

Agricultural Bank of ChinaDongming BranchNo. 165, Xiang Yang RoadDongming County, Shandong ProvincePRC 274500

Industrial and Commercial Bank of ChinaDongming BranchNo. 50, Jie Fang RoadDongming County, Shandong ProvincePRC 274500

China Industrial BankJinan BranchNo. 71, Jinan Jingshi RoadJinan, Shandong Province, PRC

Oversea-Chinese Banking Corporation LimitedOCBC Centre65 Chulia St #01-00Singapore 049513

The Hongkong and Shanghai Banking Corporation Limited21 Collyer Quay#08-01 HSBC BuildingSingapore 049320

Sinostar PEC Holdings Limited

Sinostar PEC H

oldings Limited 2011 A

nnual Report

2011

Annual Report

27 Huanghe Road, Dongming CountyShandong Province, PRC 274500

Tel: (86) 530 6259492Fax: (86) 530 7286492

www.sinostar-pec.com

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