Key points of investment:

Incident: Firefight Communications announced a targeted plan to target approximately 0.116 billion shares at 12.88 yuan/share to its actual controller, China Information and Communication Technology Group Co., Ltd. (“China ICT”), a wholly-owned subsidiary of the State Council's State-owned Assets Administration Commission, raising a total of 1.5 billion yuan. The net amount raised after deducting the relevant issuance fees will be used to supplement working capital.

Key points of the targeted distribution plan: 1) The subscribing party is China Information and Communication Technology Group Co., Ltd., which is funded and controlled by the State Council's State-owned Assets Administration Commission. It holds 92.69% of Fenghuo Technology's shares through its wholly-owned subsidiary, the Wuhan Post Academy, and Fenghuo Technology is the controlling shareholder of the company. 2) The total amount of capital to be raised in this offering is no more than 1.5 billion yuan. After deducting the issuance fee, all of it will be used to supplement working capital. 3) The subscription price is 12.88 yuan/share (80% of the average price of 16.10 yuan/share in the 20 trading days before the board resolution). 4) The number of subscribed shares is 0.116 billion shares. 5) Target shares subscribed under this agreement shall not be transferred for 36 months from the end of the current issuance.

The actual controller subscribes to the full amount, protecting the company's development and demonstrating confidence in long-term development. 1) This offering is fully subscribed to by China Information Technology. After the issuance is completed, the company's actual controller will control the company's share ratio, which will help further enhance the stability of the company's control. At the same time, China ICT's full subscription shows confidence in the company's long-term development, helps maintain the company's market image, enhances the company's overall investment value, and conforms to the interests of the company and all shareholders. 2) This fixed increase will help the company optimize its capital structure, reduce liquidity risks, and concentrate on developing its main business and laying out emerging industries. The company's current capital is mainly used to meet the daily operation and development needs of the original business. This supplementary working capital matches the company's future production and operation scale, asset scale, and business development, etc., to help meet the company's future working capital needs. The funds raised this time are used to supplement working capital, which is conducive to solving the shortage of capital in the company's rapid development process, as well as optimizing the capital structure and improving the financial situation. After the issuance is completed, the size of the company's total assets and net assets will increase accordingly, and the balance ratio will decrease, which is conducive to optimizing the company's capital structure, reducing liquidity risk, and enhancing the company's resilience to risk.

Profit forecast and investment suggestions: We expect the company's net profit to be 0.686 billion yuan, 0.891 billion yuan, 1.04 billion yuan for 24-26, and EPS of 0.58 yuan, 0.75 yuan, and 0.88 yuan, respectively. Referring to the company's historical valuation and the average valuation level of comparable companies, the company was given a 2024 dynamic PE range of 35-40X, corresponding to a reasonable value range of 20.25-23.14 yuan, which is “superior to the market” rating.

Risk warning: 400G backbone network construction falls short of expectations; network visualization and AI industry demand falls short of expectations.