Shangneng Electric Provides Clarification on Second Round Inquiry Regarding Stock Issuance Application

Shangneng Electric: Special Explanation Regarding the Second Round of Review Inquiry Letter for the Company’s Application to Issue Shares to Specific Objects

Shenzhen Stock Exchange: In accordance with your inquiry letter number [2025] 020034 dated July 29, 2025, regarding Shangneng Electric Co., Ltd.’s application to issue shares to specific objects (hereinafter referred to as the “Inquiry Letter”), our firm, as the accounting firm for Shangneng Electric Co., Ltd. (hereinafter referred to as “the Issuer” or “the Company”), has diligently and honestly conducted a thorough investigation into the related issues. We hereby provide the following explanation regarding our findings:

Note: The slight differences noted are due to rounding.

Question Two: It has been argued that the change in the issuance plan in February 2025 does not constitute a major change. However, in July 2023, the issuer modified the issuance plan to increase the number of investors. Please clarify whether this change constitutes a significant alteration as defined in “Interpretation No. 18 of Securities and Futures Law,” and further explain whether this fundraising includes funds invested prior to the board meeting. The sponsor, accountant, and legal counsel of the issuer should verify and provide explicit opinions.

Response:

1. Whether this change constitutes a significant alteration as defined in “Interpretation No. 18 of Securities and Futures Law”:
   • The issuer convened the 17th meeting of the third board of directors on May 18, 2023, to review and approve the proposal for the 2023 issuance of shares to specific investors, thereby determining the main content of this issuance plan. This proposal clearly stated that the number of investors would not exceed 35, in accordance with the conditions set by the China Securities Regulatory Commission, without specifying the composition of specific investors. To enhance investor confidence, Wu Qiang, the actual controller of the issuer, intended to participate as a subscriber in this issuance. On July 31, 2023, the issuer held the 20th meeting of the third board of directors, where it approved the proposal to adjust the issuance plan, changing the subscription objects from “not more than 35 specific investors” to “including the controlling shareholder Mr. Wu Qiang, up to 35 specific investors.” After the approval by the board, the issuer signed a conditional subscription agreement with Mr. Wu Qiang, clarifying that he would subscribe to the shares in cash. This was also approved at the third extraordinary general meeting of shareholders held by the issuer, where related shareholders abstained from voting.
2. Legal and regulatory provisions regarding whether the issuance plan constitutes a significant change:
   • The pricing benchmark date for issuing shares to specific objects is the date of the board resolution or the date of the shareholder meeting resolution. Should any of the following occur after the announcement of the board resolution, it shall be considered a significant change in the issuance plan: (1) the validity period of the shareholder meeting resolution has expired; (2) a significant change in the issuance plan has occurred; (3) other matters that significantly affect the pricing of this issuance.

Question Four: The average of comparable companies in the same industry is 0.10%, 4.16%, and 4.07%. The issuer claims this is mainly affected by product structure and domestic and foreign sales situations. The sales expense for 2024 is expected to be 190 million yuan, representing an increase of 45.18%, mainly due to increased market development expenses. Please provide: (1) an explanation of the selection criteria and accuracy of comparable companies based on their product structure and business models, and the reasons and rationality for the significant differences in the provision for inventory impairment between the issuer and comparable companies; (2) details on the main content and methods of market development activities, the specific composition of market development expenses, reasons for these expenses, and their main purposes, explaining whether market development expenses correspond to sales revenue and whether there are significant differences compared to industry peers. The sponsor and accountant should verify and provide explicit opinions.

Response:

1. Based on the product structure and business models of comparable companies, we explain the selection criteria and accuracy of comparable companies:
   • The issuer selected comparable companies based on similarities in key products, business models, and market competitiveness, while also considering data availability. Domestic listed companies were chosen as comparatives. Major competitive Chinese photovoltaic inverter companies include Sungrow Power Supply Co., Ltd., Huawei, Ginlong Technologies, and others. Due to difficulties in obtaining specific operational and financial data, some companies were excluded from the comparative analysis.
2. Reasons for the significant differences in the inventory impairment provision ratio between the issuer and comparable companies:
   • Analysis of inventory structures and impairment ratios indicates that different business models and market conditions lead to variances in impairment provisions.

Based on the findings, it has been determined that the issuer’s provisions for inventory impairment are rational when compared to industry norms and the chosen comparable companies.