Fujian Star-Net Communication Co.Ltd(002396) (002396)[TableSummary]
1、 Event overview
According to the information disclosure website of Shenzhen Stock Exchange gem issuance and listing review, the 69th review meeting of GEM Listing Committee in 2021 was held on December 2, 2021, and the initial offering of Ruijie Network Co., Ltd. was approved.
2、 Analysis and judgment
Significance to the subsidiary Ruijie network:
Release the intrinsic value of core business. Previously, the parent company had diversified business institutions, involving many fields of ICT, and the market valuation could not fully reflect the internal value of each subsidiary. Ruijie network, with centralized main business and clear positioning, was listed independently. The secondary valuation of the network communication business through the capital market is expected to fully release the internal value of the network communication business.
Improve business efficiency and brand awareness, and enhance the core competitiveness of Ruijie network. Ruijie network is a leading provider of ICT infrastructure and industry solutions in China. After this spin off and listing, Ruijie network can further improve the corporate governance structure, improve the professional operation level and brand awareness, so as to achieve leapfrog development.
Expand financing channels and improve incentive mechanism. Effectively expand the financing channels of subsidiaries, improve financing flexibility, reduce capital costs, and provide sufficient capital guarantee for their subsequent development. Subsidiaries directly enter the capital market, and the salary system is more market-oriented, which helps to improve the enthusiasm of the company’s management and employees to develop business.
Significance to parent company Fujian Star-Net Communication Co.Ltd(002396) :
After the split, the company still consolidated its performance and improved the profitability of the company. Before the split, the company held 51% of Ruijie network, and after the split, the company will hold 45% of Ruijie network. Although the interests of subsidiaries are diluted, the development of Ruijie network is expected to speed up, so as to improve the overall profitability of the company in the future.
Optimize resource allocation and rebuild a Ruijie network. The company has a number of scientific and technological innovation subsidiaries, realizing the independent listing of its specialized subsidiaries, which is highly consistent with China’s spin off listing system. It will help the parent company sort out its business structure, optimize resource allocation, focus on the development of other subsidiaries such as shengteng information, and is expected to rebuild a Ruijie network.
Further enhance the equity value of Fujian Star-Net Communication Co.Ltd(002396) . With the successful listing of subsidiaries, the stock value of parent company Fujian Star-Net Communication Co.Ltd(002396) and subsidiaries will also increase, and considerable capital premium can be obtained through the spin off and listing of subsidiaries.
3、 Investment advice
We estimate that the net profit attributable to the parent company from 2021 to 2023 will be RMB 711 / 903 / 1114 million respectively, corresponding to PE multiples of 20x / 16x / 13X, and Zte Corporation(000063) , Unisplendour Corporation Limited(000938) , Inspur Electronic Information Industry Co.Ltd(000977) are selected as comparable companies, The average PE valuation in 21 years is 25X (except that Inspur Electronic Information Industry Co.Ltd(000977) is the consensus expectation of wind, the rest are our predicted values). The spin off of Ruijie network is expected to significantly improve the overall competitiveness and valuation level of the company and maintain the “recommended” rating.
4、 Risk tips:
The demand of cloud computing downstream industry is lower than expected; Industry competition intensifies.
