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Dear Shareholders,

On behalf of the Board of Directors, I am pleased to present to you the annual report of World Precision Machinery Limited (“World Precision” and together with its subsidiaries, the “Group”) for the financial year ended 31 December 2017 (“FY2017”).

2017: YEAR IN REVIEW

Global oil prices hit US$70 per barrel in early January 2018, reaching their highest level since December 2014. Ongoing production cuts led by the Organisation of the Petroleum Exporting Countries (OPEC) have resulted in the stabilisation of global oil prices. In addition, expectation of robust global oil demand growth is also pushing oil prices higher on the demand side. Improving global growth outlook was also one of the main reasons for the rise in the oil prices.

China’s Gross Domestic Product (“GDP”) expanded 6.9% in 2017, representing the first acceleration in the annual growth pace in seven years. Two-thirds of its economic growth came from consumer spending largely due to China’s intention to rebalance its economy away from investment and towards consumption-driven growth. According to the National Bureau of Statistics, China’s industrial output expanded 6.6% in 2017, up from 6% in 2016 which is in line with the economic growth. In addition, the utilisation of China’s industrial capacity has reached 77% in 2017. This marks the highest levels in nearly five years.

In line with the growth in GDP, the Group recorded higher sales for FY2017 due to the increase in high performance and high tonnage stamping machines sales volume which was partially offset by a downward revision in the average selling prices of the stamping machines. The Group’s net profit attributable to equity holders increased by 22.2% year-on-year (”yoy”) to RMB36.8 million for FY2017, which translated into basic earnings per ordinary share of 9 Renminbi cents for our shareholders.

INDUSTRY OUTLOOK

We foresee that China will still be facing challenges in further driving economic growth as it rebalances away from exports and towards consumption and investments. Besides that, systemic financial risk is also one of the top challenges China faces, in which the debt level at state-owned enterprises has continued to rise.

In line with the improved economy and sound performance of the housing market, consumer appliances sector registered a healthy volume growth, especially the smart home appliances are increasingly popular in China. Driven by the rise in affluence, faster pace of life and mounting work pressures, the demand for smart home appliances remains robust. Affluent consumers are pursuing a smarter, high-end lifestyle, which has given a big boost to the smart home market. According to statistics from market consultancy, Statista, China's smart home market is expected to reach a value of RMB130 billion (S$20.3 billion) by 2018, with an annual growth rate of about 48%, a significant increase from RMB40.3 billion in 2015.

In addition, consumer electronics experienced retail volume growth in 2017 especially in the new categories such as wearable electronics and OLED TVs. However, the growth is partially offset by the volume decline in certain categories such as computers, in-car entertainment, video players and etc. Nevertheless, driven by rising disposable incomes and continued product innovation, emerging products such as smart wearables and OLED TVs are expected to record double-digit retail volume CAGRs over the next five years.

Green energy car sales have risen dramatically on the back of government policies and the Chinese Government will continue to promote the usage of new energy vehicles, targeting to achieve sales of 35 million vehicles by 2025. Besides that, China has earmarked a total investment of RMB732 billion in railway construction in 2018. About RMB702 billion of the total investment will be used to build 4,000 km of new rail tracks by 2018. Coupled with the Group’s established brand name, the Group is well-capitalised to capture the huge business opportunities from these industries.

The Group is aware of the mounting cost pressure due to escalating raw material and labour costs. China steel price index rose 22.4% from the beginning of 2017 to 121.8 at the end of the year due to cutting overcapacity, a ban on low-quality steel, production restrictions during winter, and recovering market demand. China’s minimum wages are set to rise further in the coming years as the government has pledged to wipe out poverty by 2020 to build a “moderately prosperous society”. With these in mind, the Group will proactively manage its inventory and lock in raw material prices with suppliers every three months while maintaining regular cost reviews of operations to maximise productivity and efficiency.

Going forward, the Group’s strategy is to increase its market share aggressively through innovation. We have always been committed in research and development (“R&D”) investment to stay relevant and to further enhance our market competitiveness and profitability. We strive to innovate our products and provide new products offerings to our customers. In addition, the Group is utilising more advanced equipment to improve production efficiency and product quality. Over the years, we have maintained a strong R&D team with around 200 technical staff and invest about 3.5% of annual sales in R&D. Currently, one of the Group’s subsidiaries is accredited as “High/New Technology Enterprise” (“HNTE”) by Jiangsu Ministry of Science and Technology Department. This subsidiary stands to enjoy a preferential tax rate of 15.0% instead of a standard tax rate of 25.0%.

A WORD OF APPRECIATION

First and foremost, we would like to thank our customers for their unwavering support in our products for the past one year.

Next, we would like to express our heartfelt gratitude to Ms. Jiang Hongdi, who has stepped down as Group Finance Director on 28 February 2018. The Board would like to express their heartfelt appreciation to Ms. Jiang for her contributions to the Group and wish her all the best for her future endeavour. We would also like to welcome Mr. Wen Hui who has been appointed as the Chief Deputy General Manager of World Precise Machinery (China) Co., Ltd.. He will be leading the production, technical, quality control, procurement and equipment departments.

Last but not least, we would like to extend our utmost appreciation to our management and staff, shareholders and business partners for their dedication and outstanding contribution. Without the relentless efforts and continued cooperation from them, the Group would not be able to achieve what it has done so far.

Mr. Shao Jianjun
Executive Chairman

Mr. Ge Minglei
Chief Executive Officer