Incident summary. On May 13, 2022, China Telecom Digital Technology Co., Ltd. issued shares to purchase 100% of the shares of Shanghai Baifei Electronic Technology Co., Ltd. and related transactions were reviewed and approved unconditionally by the China Securities Regulatory Commission's Listed Company M&A and Reorganization Review Committee.
With strong technical advantages, it fully benefits from industry development opportunities. At the technical level, Baifei Electronics' localized design capabilities have been extended from board design to basic software design and complete machine design, and has built a software-centered, board-level, machine-level, and system-level product system under the premise of independent intellectual property rights. It is a key software and hardware supplier for embedded systems in China. Baifei Electronics has more than 100 related product lines based on embedded software and hardware. Of these, nearly 60 are based on Longcore processors, nearly 30 are based on Feiteng processors, and nearly 10 are based on Sunway processors. Its core technical capabilities are mainly high performance and high reliability product design capabilities, task-oriented system integration capabilities, software middleware, development environments, etc., which can achieve hardware standardization, functional softwareization, performance expandable, system reconfigurable, products easy to upgrade, easy maintenance, and nationwide production of key software and hardware.
Baifei Electronics is a leading supplier of digital modules and complete products for embedded special computers in China. The main business of Baifei Electronics is the design, development and sale of various special parallel computing, signal and data processing, and embedded software products. The products have formed a multi-product system with characteristics such as high technical reliability, strong environmental applicability, good electromagnetic compatibility, and long life guarantee, which are widely used in the fields of digitization and high-end electronic equipment in industrial control, rail transit, aviation and shipping, radar communication and other industries. From January to October 2019, Baifei Electronics achieved revenue of 415 million yuan, 424 million yuan, and 283 million yuan, net profit of 128 million yuan, 115 million yuan, and 43 million yuan, net profit of non-attributable income of 122 million yuan, 109 million yuan, and 43 million yuan, corresponding gross margins of 66.78%, 62.13% and 61.69%, and net interest rates of 29.27%, 25.73%, and 15.23%, respectively.
Improve industrial integration, and deepen industry innovation and localization transformation. As China Telecom's listed industrial platform and fintech leader in the field of industry digitalization, Denke Digital will continue to implement the “digital leadership, business restructuring, innovation and development, and win-win cooperation” development strategy. Through the acquisition of Baifei Electronics, Electronics Digital will consolidate its key technical capabilities in edge computing and edge intelligence, further broaden the breadth of industry applications on this basis, continuously explore the depth of industry intelligence, focus on the entire life cycle of data generation, transmission, processing, and application in key industries such as financial technology, transportation, and intelligent manufacturing, create key software and hardware products for electronic digital autonomy and security, and build a highly secure and high-performance “cloud-edge-end” integrated digital solution to empower industry customers. According to the “Profit Forecast and Compensation Agreement”, Electronics Digital promises this time After the transaction was implemented, Baifei Electronics' profit forecast and net profit for the compensation period were: no less than 137.5784 million yuan in 2021, no less than 163.3095 million yuan in 2022, no less than 1974.701 million yuan in 2023, and no less than 237.037 million yuan in 2024.
Investment advice: As a strategic shareholder of the top “national team” of China Telecom Group and China Ordnance Equipment Group at the same time, and is located to build a scarce listed company platform in Shanghai, the world science and technology innovation center, whether it is the majority shareholders' position on the company's asset securitization platform, the quality of the main business assets, and a new vision focusing on the digital transformation and development of the industry, it is expected to achieve profound “qualitative change” by leaps and bounds. Considering that the company's acquisition of Baifei Electronics has been officially approved, it is expected to build a leading enterprise in overall digital solutions in the industry, and will open a new chapter in the high-quality development of electronic digital technology. Considering that the acquisition has already passed, we predict that the company's revenue for exam preparation in 2022-2024 will be 10.619, 12885, and 15.318 billion yuan, net profit attributable to exam preparation will be 547, 626, and 702 million yuan, EPS will be 1.28, 1.47, and 1.65 yuan, and the corresponding PE will be 20, 17, and 15 times, maintaining the “recommended” rating.
Risk warning: The domestic COVID-19 epidemic has been repeated; corporate restructuring has fallen short of expectations; competition in the software and technical services industry has intensified.
