Event: the company announced that the company signed an "equity transfer agreement" with Tongding Group, Shanghai Yushan Investment and Hangzhou Xingqiong Investment to acquire its 100% stake in Tonghao Information with cash. The 40% stake held by Tongding Group is priced at 43.722 million yuan, the 30% stake held by Shanghai Yushan is priced at 32.7915 million yuan, and the 30% stake held by Hangzhou Xingqiong is priced at 32.7915 million yuan, with an overall price of 109 million yuan.

Comments:

First, after the acquisition of Tonghao Information, the company will indirectly hold a 9.86% stake in UTStarcom Holdings Corp. This acquisition will further enhance the strategic layout of the company in the field of equipment, and the future development of the company in the field of 5G transmission equipment is worth looking forward to. Tong Hao Information is SPV,UTS, which is specially funded by Tongding Group, Shanghai Yushan and Hangzhou Xingqiong to invest in UTStarcom Holdings Corp. As a NASDAQ listed company in the United States, Tonghao has leading technology and products in the field of optical transmission equipment.

This strategic investment in UTS, the company will benefit from both the market and products. UTS has rich experience in products and services overseas, especially in the Asia-Pacific telecom market, and the company's strategic investment in UTS will greatly enhance the company's strength in overseas markets; in addition, in the 5G field in the future, UTS's technical strength in the field of optical transmission will help the company to expand the market in transmission fields such as mobile backhaul and metro transmission.

Second, as a veteran communications equipment provider, UTS's core business is to provide next-generation optical transmission network products, services and solutions for mobile backhaul, multi-service metropolitan area transmission, broadband access and value-added services. At present, UTS's main customers are in Japan and India's two major telecom markets.

UTS has developed and launched a series of industry-leading products and solutions in the field of optical transmission, such as PTN and SyncRing, and has carried out continuous research and development and product layout in the field of 5G transmission. In addition, UTS products also include carrier wireless communication solutions, SDN control, multi-service access networks and other products. New product areas that UTS will expand in the future include network synchronization, intelligent platforms for retail stores, and so on.

In the past two years, the operating efficiency of UTS has continued to improve and its net profit has improved significantly. Revenue in the first three quarters of 2018 was US $103 million and net profit was US $6.091 million. At present, the main markets are mainly distributed in Japan and India, accounting for 50% and 43% of the total revenue respectively, and will continue to benefit from the development of the two major telecommunications markets in the future. In the Japanese market, Softbank Corp. Softbank is UTS's largest local customer, contributing US $39.5 million in revenue in 2017, accounting for 40% of the total revenue, while India's telecom operator BSNL is the company's second largest customer, contributing US $38.2 million in 2017, accounting for 39% of the total revenue.

III. Profit forecast and valuation

In the field of communication equipment, the layout of the company is becoming more and more perfect, and the equipment field in the 5G era is worth looking forward to. Due to the short-term optical fiber business of the company affected by the inventory of the optical fiber industry, especially China Mobile Limited, the execution of the order was delayed, after the company's three quarterly reports on the full-year performance outlook was lower than expected, we lowered the company's 2018-2020 EPS from 0.67,0.92 and 1.35 yuan to 0.55,0.72 and 0.94 yuan, corresponding to PE of 14, 11 and 8 times, 5G optical communications + security strategy continued to advance, to maintain the "buy" rating.

Risk tips: operator demand is lower than expected; acquisition performance is not as good as promised; extension layout is not as expected