Description of the event

On October 11, 2024, Fiberfire Communications reviewed and passed proposals related to companies issuing shares to specific targets, such as the “Plan for Issuing A Shares to Specific Targets by 2024” (hereinafter referred to as the “Plan”).

Incident comments

Fenghuo Communications plans to raise additional capital to supplement the full subscription of China Information Technology, a subsidiary of the actual working capital controller. According to the “Plan”, the target of this issuance is China Information and Communication Technology Group Co., Ltd., and China Information Technology plans to subscribe for all shares issued in cash. The issue price is 12.88 yuan/share, which is not less than 80% of the average trading price of the company's stock of 16.10 yuan/share in the 20 trading days before the pricing benchmark date. The number of shares issued to the specified target audience of China Information Technology is 0.116 billion shares, no more than 30% of the total share capital of the company before this offering, and the total amount of capital raised is no more than 1.5 billion yuan. The net amount of capital raised after deducting the relevant issuance fees will be used to supplement working capital. The subscribed shares of the issuer cannot be transferred within 36 months from the end of the issuance.

This offering will help meet daily working capital requirements and reduce liquidity risk. Benefiting from the rapid development of the industry and the upgrading and iteration of technical equipment, the company's overall business scale is expected to continue to expand, and liquidity requirements will grow accordingly. This supplementary working capital matches the company's future production and operation scale, asset scale, business development, etc., and helps meet the company's working capital needs. 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.

The capital raised can effectively supplement the working capital required for the rapidly expanding computing and storage business. The company has a complete set of solutions to support the entire digital industrialization and industrial digitalization. In the main field of optical communication, the company has a relatively complete industrial chain from optical fiber, optical cable, chip to system equipment. In the field of optical transmission and optical access system equipment, the company insists on high-intensity R&D investment and focuses resources to build core products such as OTN and broadband access to maintain global competitiveness. At the same time, in recent years, the company has focused on building growth businesses related to computing and storage, seizing strategic opportunities for significant development of computing power, and creating a second growth curve. In recent years, the compound annual growth rate of the company's computing and storage business has reached more than 50%, and the rapid expansion of the computing and storage business requires a lot of working capital. Raising capital through this stock issuance can effectively support the company's layout of emerging industries.

The subsidiary Changjiang Computing has become an important partner of Ascend Server and continues to explore AI server markets such as operators.

The company collaborates extensively with the most advanced suppliers in the industry to achieve a systematic layout of hardware based on computing power. Continue to deepen close cooperation with operator customers, and invest resources to cultivate high-value customers such as government enterprises, finance, and electricity. It continues to be deeply involved in rail transit, digital government and other fields, and has won bids for many large-scale informatization projects. On May 16, 2024, China Mobile released the “Announcement of Successful Candidates for China Mobile's 2024-2025 New Intelligent Computing Center Procurement”. Changjiang Computing won the bid with a share of 12.28%, amounting to about 2 billion yuan, reflecting users' recognition of Changjiang Computing's product performance, technology development level, and high-quality service capabilities, and once again confirming Changjiang Computing's position as a mainstream supplier in the field of operator computing power infrastructure.

Fiberfire Communications plans to raise additional capital to supplement working capital, which is expected to help the computing and storage business continue to expand rapidly. Changjiang Computing, a subsidiary of Fiberfire Communications, is an important operator server supplier. The operator's market share is expected to continue to rise, which may open up room for the company's revenue and profit growth. The company's net profit for 2024-2026 is expected to be 0.702, 1.023, and 1.516 billion yuan, up 39%, 46%, and 48% year-on-year, corresponding to PE 29x, 20x, and 14x. It is recommended and maintains a “buy” rating.

Risk warning

1. Carrier transmission network capex falls short of expectations;

2. The competitive pattern of the industry has deteriorated.