Reinforcing our leading market position in the automotive HVAC systems for SUVs, pickup trucks and heavy trucks markets in the PRC and expanding our production capacity to support future sales demand

According to the Timer Auto Report, China’s automotive HVAC systems for SUVs, pickup trucks and heavy trucks markets are expected to grow at a CAGR of around 13% from 2011 to 2015. As one of the leading suppliers of automotive HVAC systems for SUVs, pickup trucks and heavy trucks, we believe we will benefit from such market growth. We intend to reinforce our current leading position in the PRC automotive HVAC systems for SUVs, pickup trucks and heavy trucks markets by I) exploring sales opportunities with other automakers which also manufacture SUVs, pickup trucks or heavy trucks and proactively participating in their new product development from the initial design stage; ii) enhancing our new product development capabilities; and iii) improving our product quality. In selecting other automakers which also manufacture SUVs, pickup trucks or heavy trucks which we intend to establish business relationship with, we will strive to look for automakers which have a good market reputation, a leading market position, with steady business growth and a strong financial background. Similar with our existing customers, we intend to proactively participate in product development with new customers from the initial design stage. To solidify our business relationship with these automakers, we may also establish production base close to these automakers. Currently, we are supplying HVAC systems for sedans and pickup trucks to certain sino-foreign joint ventures automakers such as Shenlong Motor and FAW-GM, respectively. We are exploring the market by seeking to sell HVAC systems for SUVs, pickup trucks and heavy trucks to such existing customers as well. We are also actively seeking business opportunities with other similar sino-foreign joint ventures automakers for sales of HVAC systems for SUVs, pick up trucks and heavy trucks.

In order to support our future sales demand, we intend to increase our production capacities. Our production facilities for HVAC systems achieved an average utilisation rate of 81.9%, 80.3% and 80.1% during the Track Record Period, calculated as described in this section under the paragraph titled ‘‘Production Facilities and Production Capacities — Production capacity and utilisation rate’’. For details of our expansion plans, please refer to the paragraph titled ‘‘Production Facilities and Production Capacities — Expansion of production plant’’ in this section of this prospectus.

Expanding our business in sedans and construction machineries HVAC system markets

To diversify our customer base and better leverage our already established presence in China automotive HVAC system and components markets, we are actively developing our business opportunities with sedans and construction machineries manufacturers. We have already supplied HVAC systems or HVAC components for sedans to our existing customers, such as Foton, GAC Changfeng and Hawtai Motor. In addition to the existing customers, we have developed a number of new sedans manufacturers as our customers such as Shenlong Motor and BAIC Group from 2010. Amongst which, Shenlong Motor is a sino-foreign joint venture automaker. For the Track Record Period, our sales to customers who are construction machinery manufacturers has increased rapidly from approximately RMB10.3 million in 2009 to RMB32.8 million in 2010 and RMB58.0 million in 2011, representing approximately 3.0%, 6.0% and 9.3% of our total turnover, respectively. We have already been recognised as an ‘‘Excellent Supplier’’ by SANY. We will continue to further expand our business in sedan and construction machinery HVAC system markets.

Strengthening our research and development capabilities and developing HVAC system for electric vehicles

We believe our research and development capabilities are one of the key reasons for our success. We will strive to strengthen our research and development capabilities by recruiting more talents, increasing research and development expenditure and expanding our research and development facilities. We are in the course of constructing a research and development building with a gross floor area of 15,631.00 sq.m. in the Jiangning Plant. The construction of the research and development building is expected to be completed in the end of 2012. We have purchased the environment simulation laboratory equipment for RMB27.8 million, which is expected to put into use at the end of 2012. This equipment allows us to test our products under different simulated environmental conditions which can help us to develop the market of HVAC systems for sedans.

We believe that as a result of the growing environmental protection concerns, electric vehicles will become the future trend of the automotive industry. We have commenced research and development of HVAC systems for electric vehicles in 2008 and have started supplying HVAC systems for electric vehicles to Foton in 2010. We have also cooperated with other institutions to develop certain components of HVAC system for electric vehicles.

Maintaining our cost advantages

In order to maintain our long term competitiveness and stable profit margins, we will endeavour to maintain our cost advantages primarily through i) new product research and development; ii) optimising the manufacturing process and efficiency by upgrading our production lines and improving the level of automation; and iii) increasing economies of scale.

We believe that through the above measures, we will be able to efficiently manage our production cost and maintain our profitability.

Expanding our current network of production bases

To further improve our service to our customers, reduce the distribution cost and strengthen our strategic co-operation with our major customers, in addition to our presence in Jiangsu, we intend to strengthen our current presence in Liaoning, Beijing and Hubei. We are also considering establishing new manufacturing base in other regions of China by ourselves or through mergers and acquisitions or joint ventures. As at the Latest Practicable Date, we did not have any specific acquisition target in respect of which we have entered into any legally binding agreement.