MANAGEMENT FOCUS AND PROSPECTS

Mr Yip Chung Nin, Andy Director & General Manager Far East Engineering Services Ltd

Far East is always well prepared to strive for challenges and will closely monitor the operational environment and adhere to cautious precaution policies. To reduce operational costs and stay competitive, the group will continue to focus on its core competencies as well as its strategies on cost control, E&M service quality and improving productivity. The group also adopts a prudent approach on treasury management. On the other hand, it is our management belief that intangible capital including Human, Information and Organization are thethree main categories that our group continues to concrete and enhance for implementing strategy.

Business Outlook - Hong Kong Market

Hong Kong’s economic rebound since 2003 has mainly been led by the financial sector. The value-added by the sector has grown at high speed with average annual rate of around 20% during the past 5 years. Amid a new wave of financial crisis, being a small open economy highly integrated with the global economy and markets, Hong Kong would inevitably be significantly affected by the current financial tsunami. The shrinkage domestic financial market activities, together with further deterioration of the already sluggish property transactions, outflow of capital and the losses suffered by domestic enterprises in the current subprime crisis, private consumption and employment would be affected, adding pressure to the real economy. The GDP growth rate has already fallen to 2.5% from 6.4% in 2007, led by the slowdown in exports and consumption and the first wave of shock from the subprime crisis.

To cope with these upcoming challenges, in terms of infrastructural developments, the government has undertaken certain large-scale infrastructural projects for the next five years to improve the local transportation system, promote long-term development of arts and culture, and provide quality living space to citizens. In addition to Hong Kong-Zhuhai-Macao Bridge Project and Guangzhou-Shenzhen-Hong Kong Express Rail Link, the MTR Corporation Limited is now working on the detailed design of the West Island Line, and has started the preliminary planning and design of the eastern section of the South Island Line. The Executive Council has approved the further planning of the Shatin to Central Link (“SCL”). The 17-kilometer SCL will have nine stations, serving a residential population of 300,000, connecting the Northeast New Territories and Hong Kong Island via South East Kowloon. The Kai Tak Development, with its funding approval recently, has entered the construction stage.

Overall, despite the above mega-size infrastructural plans and the forecast completions in 2009 and 2010 for 1. Private Domestic; 2. Private office; 3. Private Commercial, the current market consolidation will inevitably slow down both the construction and E&M activity. Same as some years before, the keen competition in the industry caused by the contraction of the construction sector for years shall be shortly unfolded. The E&M companies have to encounter the severe challenges and difficulties attributable to the tender price war. All the above force the survivors to equip with effective business model and dynamic process transformation to adapt for these ever-changing operational and management pressure.

Business Outlook - PRC Market

Mainland China’s economic growth decelerated to 6.8% in the final quarter of 2008 and 9.0% for the year down from a revised 13.0% in 2007, the slowest in seven years, on rundown of inventory, lower investment growth and sluggish external demand. With global recession looming, the outlook for Mainland China’s exports cannot be optimistic. Private consumption might also be dampened by the poor performance of the local stock market and expected slower income growth. As a result, the Mainland’s economy is anticipated to decelerate further to a growth of 8.0% in 2009 from 9.0% in 2008.

Despite the gloomy external conditions, complicated installation projects still rely on the expertise of HK contractors. 新創機電工程有限公司 (“新創機電”)has the competitive advantages over local competitors on the technical perspectives as well as the successful current PRC business model based on the extensive goodwill and experiences from previous sizable PRC projects. Macro-economically, domestic demand held up relatively well and similarly, fixed asset investment growth continued to grow by 28.8% in 1Q 2009. Along with the readjustment of the economic structure, a more mature domestic economy takes shape and the opportunities being untapped in both construction and E&M industries shall be closely monitored.

Business Outlook - Macau Market

Entering into the second half of 2008, the economy was hit by the adverse impact of the financial crisis and reduction of Mainland visitors travelling to Macao under the Individual Visit Scheme, the gaming and tourism sector started to slow down, the total investment continued to shrink, bring the entire economy clouded with uncertainties. The Macao economy contracted by 7.6% in real terms in 4Q2008, fell from real growth of 11.3% in 3Q2008.

In light of the uncertainties, anticipating 2009, the economy of Macao is expected to remain slackened attributable to the wave of financial tsunami and decreasing number of visitors’ arrivals. The M&E market in Macao especially with those gaming and tourism sector is expected under the stage of consolidation unless with new influx of investments.

Overall

Our management will continue to devise the appropriate actions to monitor and tackle the challenges ahead. On the other hand, the group will continue to focus on its core competencies as well as its strategies on cost control, M&E service quality and improving productivity. The management strongly believes that the group could maintain its top position in M&E industry, to commit total satisfaction to the customers and to enhance shareholder’s value.

May 2009