Events:
The company announced on November 25 that it intends to change its original plan to acquire a 51% stake in CALIENT in cash. The main change in the delivery process under the original merger Agreement is that Chunxing Seiko acquires 51% of the shares of the target company at one time on the agreed delivery date, and changes to a total of 51% of the target company in three deliveries no later than May 15, 2018, and has the right to choose whether to carry out the next two deliveries according to the operating conditions of the target company.
Comments:
1, CALIENT acquisition plan change, do not change the general direction of optical communications, the main reason for the change in this transaction is that the acquisition transaction amount is large, which is very important to the future development of both sides. After the change, on the one hand, the initial equity payment of the company will be reduced, which will help the company to invest its core funds and human resources in the capacity construction and market development of CALIENT products, and help the target company to achieve rapid capacity expansion and sales scale expansion. On the other hand, according to the operating condition of CALIENT, the company can independently decide the time of subsequent equity delivery and equity payment within the agreed time, so as to reduce the investment risk of the company.
2. Acquisition of CALIENT layout Optical Communications, opening the way to transition to a Technology Enterprise CALIENT is a leading manufacturer of 3D-MEMS optical switching switches, whose optical switching switches (OCS) provide ultra-low latency and the industry's largest switching capacity and density. the main applications of the products are data center and cloud computing centers, SDN optical transmission and laboratory automation. Other market segments include media and entertainment, C-RAN wireless infrastructure and submarine cable login. At present, with the change of network architecture and the outbreak of traffic, the data center is gradually becoming the convergence place of traffic. Lower latency and larger switching capacity are urgently needed for the data center to cope with the traffic growth. The optical switching switch based on 3D-MEMS technology is a kind of full-off switch. Compared with the switch based on photoelectric conversion, it can greatly reduce the time delay and increase the switching capacity. In terms of products and technology, CALIENT has the industry-leading 3D-MEMS optical switch production technology, the company uses the patented technology of deep silicon plasma etching process to manufacture 3D-MEMS mirror array, this patent and powerful and reliable software, so that its product optical switching switch can achieve dynamic and flexible management of the optical layer. In terms of downstream customers, CALIENT is mainly aimed at large data center customers, including Google, Facebook Inc, Amazon and so on. We believe that the successful completion of this acquisition will help the company to expand its business in the field of optical communications and start the transformation of the company from a precision manufacturing company to a technology company.
3. Investment suggestions:
The company acquires CALIENT, an American optical switching switch company, and marches into optical communications, opening the way to transform into a technology-based enterprise. In the future, with the arrival of 5G and the improvement of industry demand, the company's future performance may usher in an inflection point. It is estimated that the return net profit of the company from 2017 to 2019 is 1.02, 161 million and 226 million, and the corresponding EPS is 0.09,0.14 and 0.20 yuan respectively. The current stock price is 7.97 yuan, corresponding to the PE of 88x, 55x, 39x. Maintain the "prudent recommendation" rating.
Risk Tips:
1) the risk of failure of overseas mergers and acquisitions, including uncertainties in examination and approval, foreign exchange, etc.; 2) demand in the communications industry remains sluggish and competition intensifies
3) the research and development of consumer electronic products and customer breakthroughs fall short of expectations.