Pegasus Entertainment : Announcements and Notices - Profit Warning

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Pegasus Entertainment Holdings Limited 天 馬 影 視 文 化 控 股 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1326)

PROFIT WARNING

This announcement is made by Pegasus Entertainment Holdings Limited (the ''Company'' and together with its subsidiaries, the ''Group'') pursuant to Rule 13.09(2) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ''Listing Rules'') and the Inside Information Provisions (as defined under the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong).

The board (the ''Board'') of directors (the ''Directors'') of the Company wishes to inform the shareholders of the Company (the ''Shareholders'') and potential investors that, the Group is expected to record a loss for the six months ended 31 December 2017 as compared to a profit for the corresponding period in 2016.

Based on the information currently available, the Board considers that the expected loss for the six months ended 31 December 2017 is mainly attributable to the following reasons:

(i) A decrease in revenue from the film production and distribution business by reason that no film has been released during the six months ended 31 December 2017 while two films were released in the corresponding period in 2016; and

(ii) An increase in selling and distribution expenses for the film exhibition business. Such increase was mainly due to the increase in rental related expenses of 4 new cinemas in Hong Kong and in the People's Republic of China during the six months ended 31 December 2017. There were only two cinemas in Hong Kong for the corresponding period in 2016.

Pursuant to the lease agreements entered into between the Group and the landlords of these 4 new cinemas, rent-free periods ranging from 3 to 9 months have been offered by the landlords to compensate for the loss of business during the renovation period. As disclosed in the Company's final results announcement for the year ended 30 June 2017

on the accounting treatment of lease recognition and amortisation of the rent-free periods (published on 28 September 2017), these rental incentives were treated as a uniform reduction of overall rental expenses on a straight-line or systematic basis over the entire lease term. Despite the fact that the lease terms of these 4 new cinemas have already begun and no rental is required to be paid during the rent-free periods, rental expenses were immediately recognised under the aforementioned accounting treatment while revenues only began to generate when these 4 new cinemas started operations during the period from August 2017 to January 2018. Consequently, the performance of the film exhibition business for the six months ended 31 December 2017 was adversely affected.

The information in this announcement is only based on a preliminary review of the information currently available to the Group, which have not yet been finalised nor reviewed or audited by the Company's auditors. The interim results of the Group for the six months ended 31 December 2017 may be different from what is disclosed herein. The interim results announcement of the Group for the six months ended 31 December 2017 is expected to be release in February 2018. Further information about the management discussion and analysis on the performance of the Group will be contained in the said interim results announcement.

Shareholders and potential investors are advised to exercise caution when dealing in the shares of the Company.

By order of the Board

Pegasus Entertainment Holdings Limited

Zhang Liang, Johnson

Chairman

Hong Kong, 22 January 2018

As at the date of this announcement, the Board comprises three Executive Directors, namely, Mr. Zhang Liang, Johnson (Chairman), Mr. Wong Pak Ming and Mr. Lee Hin Kwong Patrick and three Independent Non-executive Directors, namely, Mr. Wang Bo, Mr. Xiang Feng and Mr. Chang Eric Jackson.