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Guangdong Shenling Environmental Systems Co., Ltd.
Audit Report
Huaxing Audit [2026] No. 25013720025
Huaxing Certified Public Accountants LLP (Special General Partnership)
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To the Shareholders of Guangdong Shenling Environmental Systems Co., Ltd.:
I. Audit Opinion
We have audited the financial statements of Guangdong Shenling Environmental Systems Co., Ltd. (hereinafter referred to as "Shenling Environmental"), which comprise the consolidated and parent company balance sheets as of December 31, 2025, and the 2025 consolidated and parent company income statements, cash flow statements, and statements of changes in shareholders' equity, as well as the related notes to the financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated and parent company financial position of Shenling Environmental as of December 31, 2025, and its consolidated and parent company operating results and cash flows for the year 2025 in accordance with the Accounting Standards for Business Enterprises.
II. Basis for Audit Opinion
We conducted our audit in accordance with the Auditing Standards for Certified Public Accountants of China. Our responsibilities under these standards are further described in the "Certified Public Accountant's Responsibilities for the Audit of the Financial Statements" section of the audit report. We are independent of Shenling Environmental in accordance with the Code of Ethics for Certified Public Accountants of China and have fulfilled our other ethical responsibilities. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
III. Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
(I) Bad Debt Provisions for Accounts Receivable and Contract Assets
For relevant information, please refer to Notes III (XI), III (XIII), III (XVII), V (IV), and V (IX) to the financial statements.
- Matter Description
As of December 31, 2025, the consolidated book balance of accounts receivable and contract assets was RMB 2,712,375,673.00, with a bad debt provision of RMB 272,634,367.69, resulting in a carrying value of RMB 2,439,741,305.31.
Because the balances of accounts receivable and contract assets are significant and the assessment of bad debt provisions involves significant management judgment, and because the impact on the financial statements is significant if they cannot be collected on time or are uncollectible, we have identified the provision for bad debts of accounts receivable and contract assets as a key audit matter.
- Audit Response
(1) Understand the credit policy of Shenling Environmental, and test and evaluate the design and operating effectiveness of key internal controls related to the management of accounts receivable and contract assets.
(2) Review the reasonableness of the accounting policies for bad debt provisions for accounts receivable and contract assets adopted by the management of Shenling Environmental.
(3) Review whether the classification of customer portfolios for accounts receivable and contract assets by Shenling Environmental is appropriate, and whether each portfolio of customers shares similar credit risk characteristics.
(4) Review the reasonableness of the methods used by Shenling Environmental to determine historical loss rates, as well as the estimates based on factors such as historical credit loss rates, current conditions, and forecasts of future economic conditions.
(5) Recalculate the amount of bad debt provisions based on the expected credit loss model.