Incident Overview

The company issued an announcement on December 20: Sichuan Jiuzhou Electric Co., Ltd. (hereinafter referred to as the Company) is planning to issue shares to purchase assets and raise supporting capital and related transactions (hereinafter referred to as this transaction). The current suspension of trading is expected to last no more than 10 trading days. The company will disclose relevant information and apply for the resumption of the company's stock trading before the suspension period expires, that is, before January 5, 2024, in accordance with the requirements of “Guidelines No. 26 on the Disclosure of Corporate Information and Format for Publicly Issued Securities - Material Asset Restructuring for Listed Companies”.

Analytical judgment:

The target of this proposed transaction is military assets owned by the Jiuzhou Group, and there is strong synergy with the main military business. The underlying asset of the proposed transaction is 100% equity of Shanghai Zhiliang Electronic Technology Co., Ltd. According to Wind, the target company is a high-tech enterprise with leading domestic technology and targeting high-end application markets such as the national defense electronic equipment industry. The company focuses on the development of technologies and products such as radar and electronic warfare equipment, airborne and shipborne military electronic systems, and simulation. After years of accumulation, the company has various product lines such as military electronic systems, data acquisition, and radar system simulation. The majority shareholder of the underlying assets is Sichuan Jiuzhou Electric Group Co., Ltd., which holds 51% of the shares.

According to the company's 2023 semi-annual report, the company's air traffic control business is mainly engaged in R&D, manufacturing and sales of air traffic control systems (communication systems, navigation systems, monitoring systems, information management systems, etc.) and related avionics equipment. The company has a rich product range, covering the entire process of aircraft take-off, climbing, cruising, falling and landing, which can meet the needs of customers in various fields. The company's microwave radio frequency business is engaged in the development, production and sales of microwave radio frequency devices, components, modules, complete machines, systems and solutions. The products are mainly used in the military field in radar, electronic countermeasures, and aerospace communications. We believe there is strong synergy between the company's current military business and the assets it plans to purchase.

The assets to be purchased at this time constitute a related transaction. The names of the counterparties to be issued shares to purchase assets this time are Sichuan Jiuzhou Electric Group Co., Ltd., Shanghai Tayu Enterprise Management Center (limited partnership), and Shanghai Tangzhong Network Technology Partnership (limited partnership). Since the controlling shareholder of the target company is also controlled by the actual controller of the company, this transaction constitutes a related transaction.

Investment advice

We maintain our profit forecast. We expect the company to have revenue of 40.73, 45.54, and 5.312 billion yuan in 2023-2025, and net profit of 2.27, 2.94, and 389 million yuan, corresponding to EPS of 0.22/0.29/0.38 yuan, respectively. Based on the closing price of 7.7 yuan on December 20, 2023, the corresponding PE is 35/27/20 times, respectively, maintaining the “increase in holdings” rating.

Risk warning

The proposed transaction has not yet been completed. There are risks such as uncertainty, the risk that the downstream industry will not be as prosperous as expected, industry competition will intensify, order acquisition will fall short of expectations, fluctuations in the cost of upstream raw materials, etc., risk of new technology iteration, industry space estimation bias, risk of third-party data distortion, risk of third-party data distortion, risk of information delays or untimely updates, and exchange rate fluctuations in public information used in the research report.