I. Company profile:

The company was founded in 2007 and initially focused mainly on transmission cables in the 3G mobile communication market. In December 2008, the Ministry of Industry and Information Technology issued a 3G network license. In 2009, the company was rated as a “high-tech enterprise”. In the same year, it bid for three major operators and began continuous supply. In 2012, the company was successfully listed on the main board of the Hong Kong Stock Exchange.

Mr. Qian Lirong is currently an executive director, chairman of the board of directors, group chief executive, and main shareholder of the company. He is responsible for the overall strategic development of the group business and overall management of the group. He has been in the communication cable industry for over 30 years and has a deep understanding of the industry.

II. Company Finance:

1. Financial data

The company's H1 revenue in 2023 was RMB 1,251 million, +0.47% year on year; net profit was RMB 34.49 million, or -30.57% year on year.

2. Main indicators and brief analysis

The gross margin of H1 in 2023 fell slightly by 1.7 percentage points from H1 in 2022, to about 12.6%. The decline in gross profit was due to market competition.

The three major H1 operators accounted for more than 90% of the company's revenue in 2023. The company still maintains close cooperative relationships with the three major operators, while maintaining a good business relationship with China Tower.

In 2023, H1's trade and other receivables were RMB 4.192 billion. Since customers are mainly the three major operators, they will basically not become bad debts. It's just that lengthening account periods will further reduce the company's profitability and operating cash flow.

3. Products and Industries:

1. Product

The company's four major products include RF coaxial cables, optical cable products, flame retardant software cables, and new electronic components. It is mainly used as an access transmission system for communication broadband networks and mobile Internet in telecommunication engineering.

RF coaxial cable series

RF coaxial cable is the company's main product, and its sales volume is in the leading position in the country. A cable mainly used to transmit and receive radio frequency (RF) signals. It is a necessary component for transmitting mobile communication signals on base stations.

Optical cable product series

Communication optical cables are widely used for signal transmission in various departments such as telecommunications, electricity, and broadcasting, including long-distance connections between base stations and base stations and between base stations and buildings.

Flame retardant flexible cable series

Flame retardant flexible cables are widely used as internal connection cables for power systems or mobile cable transmission and distribution systems. They are particularly suitable for systems that require uninterrupted power supply, such as communication exchange centers, elevator computer rooms, and automatic fire protection systems.

Novel electronic components

Auxiliary devices used in telecommunication equipment, such as connectors, power splitters, couplers, etc., also include sensors and other products of sensor subsidiaries.

With its comprehensive strength and service advantages, the company has maintained in-depth cooperation with the three major operators for more than 10 years, and has ranked first in domestic sales of RF cable products in the past ten years.

The company has strong R&D capabilities in terms of products, with a R&D team of more than 200 people. Currently, it has 1 national R&D center and 3 provincial R&D centers, and has presided over the formulation of more than 75% of national and industry standards for communication antenna feeder systems. The company currently has 207 patents, including 70 invention patents and 137 adaptable patents. The company is also comprehensively promoting 6G technology research and development.

2. Industry

(1) The telecom industry has maintained steady growth

According to the latest data, the national telecom business achieved revenue of 1.58 trillion yuan in 2022, an increase of 8.0% over the previous year. In 2022, the three major operators and China Tower achieved a total investment of 419.3 billion yuan in telecom fixed assets, maintaining steady growth.

(2) Communication base station opportunities in the 5G era

Communication base stations are the most critical infrastructure in mobile communication networks. According to the “Economic Operation of the Communications Industry in the First Half of 2023” issued by the Ministry of Industry and Information Technology, by the end of June 2023, the total number of 5G base stations reached 2.937 million, accounting for 26% of the total number of mobile base stations. 620,000 stations were added in the first half of the year. It is estimated that 900,000 stations will be completed throughout the year, far exceeding the 600,000 stations planned by the Ministry of Industry and Information Technology at the beginning of the year. The number of 5G users is expanding at an accelerated pace. The number of 5G mobile phone users reached 676 million, a net increase of 115 million over the end of 2022, accounting for 39.5% of mobile phone users, an increase of 6.2 percentage points over the end of 2022.

The continued growth of communication base stations has also brought opportunities for the rapid development of downstream industries. New progress has been made in the construction of new information infrastructure such as 5G and gigabit optical networks, and the spread of various applications has been accelerated across the board, providing strong support for building new advantages in the digital economy and enhancing new momentum for economic development. It is estimated that between 2022 and 2025, the total construction scale of 5G base stations will reach 6 million.

(3) Strong demand for RF coaxial cables

5G signal transmission needs are already compatible with the needs of 3G/4G, and the amount of RF coaxial cable used in a single product has increased compared to the original product; at the same time, global electronic products in the 5G era have shown development in the direction of lightness, flatness, and high transmission, placing higher demands on the performance and size of electronic components such as RF coaxial cables, and the demand for high-shielded, low-loss RF coaxial cables has greatly increased.

In addition, the downstream application range of RF coaxial cables also continues to expand. In the future, there are also good application prospects in emerging fields such as vehicle networking, driverless driving, smart homes, smart cities, smart medical care, industrial Internet, drones, VR/AR, smart agriculture, and emergency safety.

IV. Privatization:

The company issued a privatization announcement on June 29, 2023.

1. Privatization Plan

Qian Lirong, the single majority shareholder and chairman, proposed privatizing the company through a planned arrangement, with a cash price of HK$0.5 per share, a 31.58% premium compared to the closing price before the suspension of trading; or 1 share of Pure Success (holding company) for each share held.

2. The privatization plan may have harmed the legitimate rights and interests of small to medium shareholders (1) The valuation of privatization is low

As a leading enterprise in the RF coaxial cable and optical cable products industry, the company has advantages in terms of market share, R&D strength, and customer strength.

Based on privatization at a cash price of HK$0.5 per share, the company's PB is about 0.232, which is a low valuation.

(2) Huge dividendable reserves

The company's 2022 annual report shows that the amount of reserves available for distribution to shareholders is approximately RMB 1,552 billion. In the case of full dividends, the dividend is approximately RMB 0.866 per share.

5. The price of privatization is low. Dividends should be paid first and then privatized to protect the legitimate rights and interests of small to medium shareholders:

In light of the above, the company harmed the legitimate rights and interests of small to medium shareholders, whether it was privatized at a cash price of 0.5 HKD per share or the amount of reserves that could be distributed to shareholders.

If the company first gives shareholders a dividend of 0.433 yuan/share of half of the reserve amount that can be distributed to shareholders, and then carries out privatization procedures at a cash price of 0.5 HKD per share, it can protect the legitimate rights and interests of the majority of small to medium shareholders.