Incident: On December 22, the company announced that the shareholder National Integrated Circuit Industry Investment Fund Co., Ltd. (holding 80.36 million shares, accounting for 19.60% of the company's total share capital) will reduce the total number of company shares held by no more than 12.3 million shares through collective bidding or bulk transactions according to market conditions (the number of shares to be reduced by no more than 3.00%).

The long-term shareholding of CEC and large funds shows confidence, and partial holdings reduction will lead to the release of the circulation market.

As of the company announcement date, China Integrated Circuit Industry Investment Fund Co., Ltd. held a total of 80.36 million shares of the company (accounting for 19.60% of the company's total share capital), invested in September '16, and the ban was lifted in September '24. The share reduction ratio is low (no more than 3%); the large fund will reduce its holdings of 12.3 million shares at the market price from January 14, '25 to April 13, '25, corresponding to 1.15 billion yuan (according to the latest closing price).

The company's largest shareholder and its co-actors China Zhenhua, China Electronics and CLP Financial have long-term shareholding (current shareholding ratio of 30.14%), fully demonstrating their high confidence in the company's long-term development.

Ethernet development prospects are broad, and domestic Ethernet switching chip leaders are expected to continue to benefit. BroadComfy24's AI revenue has exceeded expectations, showing that the AI hardware boom continues and has broad prospects for AI ASIC and network development in the medium term. In addition to Arista's announcement that 24Q3 will expand 1 new hyperscale customer to adopt the Ethernet architecture (previously reliant on the InfiniBand network), the penetration rate of the AI networking Ethernet architecture is expected to continue to increase, and the company will continue to benefit as a domestic Ethernet switching chip leader.

The mid-range and low-end product lines continue to be completed, and 12.8T and 25.6T high-end Arctic products are progressing steadily. In terms of mid-range and low-end products, the company's mid-range products already have certain advantages over competing products. Accelerating the introduction of more product lines is expected to increase the company's market share in enterprise networks, operator networks, mid-tier data centers and industrial networks.

In terms of high-end products, the company's 12.8T and 25.6T Arctic series chip products have been sent to customers for testing in 24 years, and have been delivered in small batches. They can support a maximum port rate of 400G/800G, and are expected to enter the hyperscale data center market monopolized by overseas manufacturers.

Investment advice: The scarce domestic Ethernet switching chip leader continues to benefit from the development of Ethernet. The company's net profit to mother for 2024-2026 is estimated to be -0.082 billion yuan, 0.037 billion yuan, and 0.246 billion yuan, respectively, maintaining the “gain” rating.

Risk warning: Increased market competition, rising raw material prices, uncertainty in new product development, and risk of short-term stock price fluctuations.