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 the risk of changes in market interest rates relates primarily to the Group’s interest-bearing bank deposits and loans and borrowings from banks and financial institutions. The interest-bearing loans and borrowings of the Group are disclosed in Note 26. As certain interest rates are based on interbank offer rates, the Group is exposed to cash flow interest rate risk. This risk is not hedged. Interest-bearing bank deposits are short to medium-term in nature but given the significant cash and bank balances held by the Group, any variation in the interest rates may have a material impact on the results of the Group.

The Group manages its interest rate risk by having a mixture of fixed and variable rates for its deposits and borrowings.

Interest rate sensitivity

The sensitivity analyses below have been determined based on the exposure to interest rates for bank deposits and interest-bearing financial liabilities at the end of the reporting period and the stipulated change taking place at the beginning of the year and held constant throughout the reporting period in the case of instruments that have floating rates. A 50 basis points increase or decrease is used and represents management’s assessment of the possible change in interest rates.

If interest rate had been 50 (2021: 50) basis points higher or lower and all other variables were held constant, the profit before tax for the year ended December 31, 2022 of the Group would increase/decrease by RMB 12.2 million (US$ 1.8 million) (2021: increase/decrease by RMB 15.4 million).

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s sales, purchases and financial liabilities that are denominated in currencies other than the respective functional currencies of entities within the Group. The Group also holds cash and bank balances and other investments denominated in foreign currencies. The currencies giving rise to this risk are primarily the Singapore Dollar, US Dollar and Euro.

Foreign currency translation exposure is managed by incurring debt in the operating currency so that where possible operating cash flows can be primarily used to repay obligations in the local currency. This also has the effect of minimizing the exchange differences recorded against income, as the exchange differences on the net investment are recorded directly against equity.

The Group’s exposures to foreign currency are as follows:


	31.12.2021
	Singapore Dollar			Euro			US Dollar			Others
	RMB’000			RMB’000			RMB’000			RMB’000
Quoted equity securities		606			—			—			—
Trade and other receivables		676			8,806			297			—
Cash and bank balances		164,544			2,535			4,345			14,342
Financial liabilities		(1,428	)		—			—			—
Trade and other payables		(4,551	)		(8,997	)		(3,651	)		(510	)

Net assets/(liabilities)		159,847			2,344			991			13,832



	31.12.2022
	Singapore Dollar			Euro			US Dollar			Others
	RMB’000			RMB’000			RMB’000			RMB’000
Trade and other receivables		1,504			7,328			4,484			218
Cash and bank balances		166,517			1,282			26,521			15,340
Financial liabilities		(202	)		—			—			—
Trade and other payables		(5,064	)		(11,586	)		(7,258	)		(2,579	)

Net assets/(liabilities)		162,755			(2,976	)		23,747			12,979

US$’000		23,412			(428	)		3,416			1,867

Foreign currency risk sensitivity

A 10% strengthening of the following major currencies against the functional currency of each of the Group’s entities at the reporting date would increase/(decrease) profit before tax by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.


	Profit before tax
	31.12.2021		31.12.2022			31.12.2022
	RMB’000		RMB’000			US$’000
Singapore Dollar		15,985		16,276			2,341
Euro		234		(298	)		(43	)
US Dollar		99		2,375			342

Equity price risk

The Group has investment in Thakral Corporation Ltd “TCL” which is quoted equity securities.

Equity price risk sensitivity

A 10% increase/(decrease) in the underlying prices at the reporting date would increase/(decrease) Group’s profit before tax by the following amount:


	31.12.2021		31.12.2022		31.12.2022
	RMB’000		RMB’000		US$’000
Statement of profit or loss		61		—		—

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

Trade receivables

Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit limits are established for all customers based on internal rating criteria.

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed for all customers requiring credit over a certain amount.

An impairment analysis is performed at each reporting date using a provision matrix. The provision rates are determined based on days past due for groupings of various customer segments with similar loss patterns (i.e. by profiles of the customers). The calculation reflects the reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are

written-off

at management’s discretion after assessment and are not subject to enforcement activity. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 15. The Group’s share of bills receivables of a joint venture which was used as collateral as security is disclosed in Note 5.

Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix:


				Trade receivables
						Days past due
As of December 31, 2021	Total			Current		0 – 90 days			91-180 days			181-365 days			>365 days
	RMB’000			RMB’000		RMB’000			RMB’000			RMB’000			RMB’000
Expected credit loss rate		9.1	%		—		0.5	%		7.2	%		15.3	%		55.2	%
Estimated total gross carrying amount at default		364,445			117,832		131,411			33,897			37,169			44,136
Expected credit loss		33,210			—		714			2,428			5,686			24,382



				Trade receivables
						Days past due
As of December 31, 2022	Total			Current		0 – 90 days			91-180 days			181-365 days			>365 days
	RMB’000			RMB’000		RMB’000			RMB’000			RMB’000			RMB’000
Expected credit loss rate		2.1	%		—		0.2	%		0.2	%		0.6	%		63.1	%
Estimated total gross carrying amount at default		1,549,462			1,138,365		216,355			80,132			63,477			51,133
Expected credit loss		33,247			—		500			124			372			32,251

At December 31, 2022, the Group had top

customers (2021: top

customers) that owed the Group more than RMB

993.1

million (US$

142.8 million) (2021: RMB 203.5 million) and accounted for approximately 53.5% (2021: 47.0%) of trade receivables (excluding bills receivables) respectively. These customers are located in the PRC. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets mentioned in Note 15. The Group’s share of bills receivables of a joint venture which was used as collateral as security is disclosed in Note 5.

Cash and fixed deposits are placed with banks and financial institutions which are regulated.

Liquidity risk

The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations and to mitigate the effects of fluctuations in cash flows, and having adequate amounts of committed credit facilities.

The table below summarizes the maturity profile of the Group’s financial assets and liabilities based on contractual undiscounted payments.


	1 year or less		2 to 5 years		Total
As of December 31, 2021	RMB’000		RMB’000		RMB’000
Financial assets
Trade and bills receivables		6,768,335		—		6,768,335
Other receivables, excluding tax recoverable		138,780		—		138,780
Cash and bank balances		5,221,555		110,000		5,331,555
Quoted equity securities		606		—		606

		12,129,276		110,000		12,239,276


Financial liabilities
Loans and borrowings		2,130,356		101,524		2,231,880
Trade and other payables (Note 22)		9,391,524		188,725		9,580,249
Lease liabilities		28,121		13,650		41,771

		11,550,001		303,899		11,853,900



	1 year or less		2 to 5 years		After 5 years		Total		Total
As of December 31, 2022	RMB’000		RMB’000		RMB’000		RMB’000		US$’000
Financial assets
Trade and bills receivables		6,487,095		—		—		6,487,095		933,140
Other receivables, excluding tax recoverable		434,750		—		—		434,750		62,537
Cash and bank balances		4,830,743		20,000		—		4,850,743		697,758

		11,752,588		20,000		—		11,772,588		1,693,435


Financial liabilities
Loans and borrowings		2,158,839		209,400		—		2,368,239		340,661
Trade and other payables (Note 22)		8,080,782		189,366		—		8,270,148		1,189,624
Lease liabilities		33,102		26,928		216		60,246		8,666
Other financial liability		—		—		58,212		58,212		8,374

		10,272,723		425,694		58,428		10,756,845		1,547,325