Event: the company announced that Cayman Tonghao, a wholly-owned overseas subsidiary of the company, signed a "purchase agreement" with Shah Capital and its related parties to purchase its total UTStarcom920 shares of NASDAQ listed company in cash (about 26.05% of the total share capital of UTS). The total consideration for this transaction is US $49.22 million, equivalent to about 329.8971 million yuan.
Comments:
First, prior to this transaction, the company has invested 3.5 million shares in UTS through wholly-owned Tonghao Information and Cayman Tonghao. After the completion of this transaction, the company will indirectly hold 12.7 million shares of UTS through Tonghao Information and Cayman Tonghao, with a shareholding ratio of about 35.96%, making it the largest shareholder of UTS, and will appoint and nominate suitable candidates to serve as directors and chairman of the board of directors of UTS.
The company continues to increase the product layout in the field of 5G equipment, with a communication equipment scheme from access to transmission, and its strength has been significantly improved. the future development prospect of the company in the field of 5G transmission equipment is worth looking forward to. As a NASDAQ listed company in the United States, UTS has leading technologies and products in the field of optical transmission equipment, and has carried out continuous research and development in the field of 5G transmission, and intends to launch sliced packet network products. At present, through the combination of independent research and development and external cooperation, the company has gradually built a communication equipment product and solution system covering the business areas of transmission, access and wireless. After investing in UTS, a complete layout of communication equipment from access to transmission will be formed.
The strategic investment in UTS, the company also benefited significantly in the market. 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 future, in the 5G field, UTS's technical strength in optical transmission field will help the company to expand the market in mobile backhaul, metro transmission and other transmission fields, and seize the domestic market opportunities for 5G network construction.
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, the equipment field in the 5G era is worth looking forward to, and the company's 5G optical communication + security strategy will continue to advance in the future. It is estimated that the company's EPS from 2018 to 2020 will be 0.55,0.72 and 0.94 yuan respectively, corresponding to 15, 11 and 9 times PE respectively, maintaining the company's "buy" rating.
Risk tips: operator demand is lower than expected; acquisition performance is not as good as promised; extension layout is not as expected