China Great Wall (000066) Important Events Quick Comment: Proposed acquisition of 35% stake in Feiteng surpasses market expectations of independent and controllable hardware leader and is solid

Matters: The company announced on June 24, 2019 that the company received the “Notice on Transfer of Equity Interests in Tianjin Feiteng Information Technology Co., Ltd. from Tianjin Feiteng Information Technology Co., Ltd. by Plan and Agreement” with China Electronics Information Industry Group Co., Ltd., the shareholder and actual controller.Tianjin Feiteng Information Technology Co., Ltd. held by Hua Electronics Group Co., Ltd. 21.

46% of the equity was transferred to the company by agreement. Compared with the situation disclosed earlier, the counterparty of the part of Tianjin Feiteng that the company intends to acquire this time will be expanded from the original Huada Semiconductor Co., Ltd. to Huada Semiconductor and China Zhenhua.Will be original 13.

54% increased to 35.

00%, the specific transaction plan needs to be further negotiated based on the relevant results of the audit or evaluation, and the final content is subject to the formal distribution and transfer agreement signed by the transaction parties.

Guoxin Computer’s view: The market expectations of expanding the acquisition rate of Feiteng to more than 35% indicate CEC Group’s determination to inject Feiteng into the Great Wall of China, and the strategic scale of Great Wall of China within CEC Group is solid.

Feiteng’s domestic CPU has leading performance, has ARM V8 permanent authorization, scarce strategic resources, and can achieve independent control of the IP core, which is an important part of the PK system.

In 2019, national leaders visited and investigated several times, demonstrating their strategic layout.

Based on the mature ARM architecture, Feiteng has created a new series of products FT-1500A and FT-2000A.

At present, domestic operating systems and domestic software products have completed the full adaptation work on FT-2000A series platforms.

FT-2000A can partially replace chip “Xeon” chips in domestic information systems and applications in key industries such as finance, telecommunications, and energy.

Considering that Feiteng has not yet conducted financing, Great Wall of China may expect to obtain equity at an alternative estimated consideration, and Feiteng realizes leaps and bounds development in 2019. It is estimated that the change in space will directly benefit China Great Wall.

The Great Wall of China is well-positioned to be autonomous and controllable, and the advantages of the CEC Group’s industrial chain linkage are outstanding, and it will become a leader in independent and controllable hardware.

Regarding Feiteng’s consolidation for the time being, and assuming that the company’s subsidiaries’ financing and sale of properties continue to bring investment income, it is expected to return to the mother’s net profit in 19-21.

50/19.

25/22.

31 trillion, corresponding to 0 EPS.

560.

66/0.

76 yuan, corresponding to the current expected PE of 18/16 / 13X, for the first time assigned an “overweight” rating.

Comment: Expand the market expected range of Feiteng acquisition ratio to more than 35%. On March 17, 2017, the company announced that it had signed “About Transfer of Tianjin Feiteng Information Technology Co., Ltd.” with Huada Semiconductor Co., Ltd.

54% Equity Transfer Agreement “on the acquisition of Tianjin Feiteng Information Technology Co., Ltd. held by Huada Semiconductor.

54% of the equity parties reached preliminary intentions, and the above matters are currently subject to approval by relevant departments.

In addition, CEC Group (China Electronics and Information Industry 杭州桑拿 Group Co., Ltd.), through its two secondary holding subsidiaries Zhenhua Group and its wholly-owned subsidiary Huada Semiconductor, collectively holds a 35% stake in Tianjin Feiteng, surpassing its largest shareholder, Tianjin.Shareholding ratio of Binhai New Area Military-civilian Integration and Innovation Research Institute.

As a result of institutional reforms and intangible assets evaluation and assessment, the above 13.

The 54% Feiteng equity transfer has been postponed and has not yet been implemented.

The company that announced this time announced that the proportion of shares in Feiteng acquired by the original 13.

54% increased to 35.

00%, which surpassed market expectations.

Huada Semiconductor holds Feiteng 13 as a wholly-owned subsidiary of CEC Group.

54% equity, Zhenhua Group is a holding subsidiary of CEC Group (CEC holds 53 shares.

82%, Guizhou Province SASAC holds 31 shares.

36%) holds Feiteng 21.

46% equity.

The announcement conveys the CEC Group’s determination to inject Feiteng into the Great Wall of China, and includes the stake in Feiteng held by its holding subsidiary Zhenhua Group.

The strategic integration of Great Wall of China within the CEC Group is solid.

After the reorganization of the Great Wall of China in 2017, the company repositioned itself as an important carrier of autonomous and controllable computing for China Electronics, an important information security platform for China’s electronic military-civilian integration, and for the military defense, key national areas and important industries.Provider of key infrastructure and solution for informatization, service operator.

The asset injection will strengthen the strategic layout of Great Wall of China within the group.

Feiteng’s domestic CPU has leading performance, possesses ARM V8 permanent license, and can realize independent control of IP core. It is an important part of the PK system. At the end of 2017, China Electronics officially released the “PK system” at the World Internet Conference.In combination with Feiteng processors.Feiteng keeps researching and iterating on products. At present, the PK architecture of Feiteng + Kirin has replaced the Wintel architecture of Windows + Intel in some industry application systems. It has replaced considerable possession in the first few exceptions of nationally controlled bidding.

Tianjin Feiteng is the Tianjin Binhai New Area Military-civilian Integration and Innovation Research Institute (the largest shareholder, jointly constructed by Tianjin Binhai New Area and the National University of Defense Technology), Tianjin Binhai New Area Technology Finance Investment Group Co., Ltd., China Zhenhua Electronics GroupCo., Ltd. and Huada Semiconductor Co., Ltd. were jointly established and established on August 21, 2014. They are mainly committed to the design, production, sales and service of high-performance, low-power integrated circuit chips, providing users with safe, reliable, and high performance., Low-power CPU, ASIC, SoC and other chip products, IP products and system-level solutions based on these products.

Tianjin Feiteng’s total assets at the end of 20166.

03 trillion, total debt 301.

800,000 yuan, net assets 6.

00 ppm; 2016 revenue of 19.46 million yuan, net profit of 22.

270,000 yuan.

Based on a mature ARM architecture, Tianjin Feiteng has created a new series of products FT-1500A and FT-2000A.

In March 2015, Tianjin Feiteng released the world ‘s first ARM-based 64-bit high-performance CPU-FT1500A series, marking that domestic CPUs have become capable of developing high-end chips under the international mainstream ARM route.

FT-1500A is the successor product of Feiteng FT-1500 based on SparcV9 architecture developed by National University of Defense Technology for Tianhe II.

The FT-1500A series currently includes four cores and 16 cores. Among them, the FT-1500A / 4 chip is mainly inserted into the field of lightweight servers and desktop and portable terminals, which can be competent for network services, mail services, storage services, office, Internet access,Word processing, graphics and image processing, audio and video processing and other services.

The FT-1500A / 16 chip is mainly used in high-throughput server areas, such as office business system servers, Internet / cloud computing servers, etc., which can be competent for network services, transaction processing, data center storage, databases, network switching and other services.

Products based on FT-1500A series processors have been widely used in government office, Internet, telecommunications, finance, taxation and other industries informatization systems.

The FT-2000A series includes FT-2000 / 64 and FT-2000 Plus.

In the fourth quarter of 2017, Tianjin Feiteng completed the development of FT-2000plus, and its partners are also actively developing corresponding machine products.

The FT-2000plus chip uses an improved version based on FT2000. FT-2000Plus uses TSMC’s 16nm manufacturing process with a main frequency of 2.

0 GHz-2.

4GHz.

At the same time, in order to improve the integration, the three-level cache was abandoned, and the DDR4 memory controller was integrated into the chip.

In actual tests, the three-level cache deleted by FT-2000Plus and the positive and negative effects brought by integrated DDR4 are roughly replaced, so that the performance of FT-2000Plus is not much different from that of FT-2000 at the same frequency.

The launch of FT-2000Plus is mainly based on commercial considerations. Increasing the integration of FT-2000plus can facilitate OEMs and reduce the cost of developing products based on FT-2000plus.

At present, domestic operating systems and domestic software products have completed the full adaptation work on FT-2000A series platforms.

FT-2000A can partially replace chip “Xeon” chips in domestic information systems and applications in key industries such as finance, telecommunications, and energy.

In 2019, national leaders visited and investigated many times, highlighting the strategic scarcity.

National leaders visited Feiteng twice in 2019.

In January 2019, General Secretary Xi Jinping inspected the Tianjin Binhai-Zhongguancun Collaborative Innovation Exhibition Center, affirmed the achievements of Feiteng chips, and gave instructions for the future development of Feiteng chips.

In March 2019, Zhao Leji, member of the Politburo Standing Committee and secretary of the Central Commission for Discipline Inspection, went to Tianjin Feiteng for research.

Feiteng is a leader in domestic ARM-based PCs and server CPUs in China. The authorized resources are scarce. Future development is expected to continue to receive government support.

At present, the national integrated circuit industry investment fund is actively investing in the chip field. We expect that Feiteng will also receive investment in the future.

Considering that Feiteng has not been financed since its establishment, Great Wall of China may expect to obtain equity at an alternative estimated consideration, and Feiteng’s estimated space merger is because Tianjin Feiteng has not conducted a new round of financing since its establishment. It is currently estimated that it has not been revalued and registeredThe capital is 600 million.

The announcement issued this time involves the transfer of the equity involved in the CEC system, so there is a possibility that Great Wall of China can transfer the estimated consideration.

After 5 years of development, under the background of the rapid growth of the safe and controllable market, the revenue scale has achieved leapfrog development in 2019, and Feiteng’s estimated space penetration.

The merger of the largest shareholder of Feiteng of the CEC group system is expected to continue to maintain the actual controller of the Great Wall of China. China Electronic Information Industry Group Co., Ltd. (CEC) has become the leading domestic independent controllable software and hardware product and information security service through reorganization and integrationIs the only company with an independent and controllable entire industry chain from chips, operating systems, middleware, databases, security products to application systems, forming an information security service system from the security consulting, system integration, and security operation and maintenance life cycle, Has the unique advantages of independent controllable industrial chain linkage and ecological support.

At present, CEC Group through its two subsidiary Zhenhua Group and Huada Semiconductor jointly holds 35% equity of Tianjin Feiteng, surpassing the shareholding ratio of Tianjin Binhai New Area Military-civilian Integration and Innovation Research Institute, which is the largest in the true sense.shareholder.

Considering the strategic positioning of the CEC Group, we expect that the CEC Group system is expected to continue to invest in Feiteng in the future, in order to keep some of the largest shareholders unchanged, and the CEC Group is expected to continue to provide domestic CPU scarce assets.

The Great Wall of China has an in-depth and self-controllable layout, relying on CEC to create an independent and controllable hardware leader. Great Wall of China has core technologies in key areas such as trusted computing, secure storage, computer integrated security protection, and virtualization., TCM (Trusted Computing Module), identity recognition technology, virtualization technology, secure operating system and other secure computer technologies are at the leading domestic level.

Relying on the CEC Group, the company has fully integrated the capabilities of independent controllable complete machines and servers from design, research and development, verification to production, and the performance of related products based on Feiteng CPU has kept ahead.Application, using domestic information system instead of acceleration, Feiteng platform-based product business ushered in scale development.

At the same time, the company can also provide security motherboards and security system products based on mainstream domestic CPUs such as Loongson and Shenwei. The independently developed security products operate stably, have a large amount of information storage, fast data transmission speed, strong system compatibility, and information security.Safeguards can meet the operational needs of multi-level government units and the military.

The Great Wall General Product Line of China is a general-purpose computer developed by the national party and government departments, nuclear high-key users and industrial customers. It provides domestically-made independent platform hardware solutions that meet the needs, mainly including storage servers, servers, desktop computers, all-in-ones, and notebooksComputer, etc.

After the reorganization, the company repositioned itself as an important carrier of independent and controllable computing of CEC Group, an important information security platform for military-civilian integration, and an independent and controllable network security and key information infrastructure and solutions for military defense, national key areas and important industries.Provider, service operator.The company is relying on the CEC Group to establish a complete autonomous and controllable ecosystem, and the industrial chain linkage advantage is expanded. It plans to invest in Tianjin Feiteng. The domestic CPU has leading performance and scarce resources.

Investment suggestion: The market expectation of expanding Feiteng’s acquisition ratio to more than 35% shows CEC Group’s determination to inject Feiteng into the Great Wall of China, and the strategic layout of Great Wall of China within CEC Group is stable.

Feiteng’s domestic CPU has leading performance, has ARM V8 permanent authorization, scarce strategic resources, and can achieve independent control of the IP core, which is an important part of the PK system.

In 2019, national leaders visited and investigated several times, demonstrating their strategic layout.

Based on the mature ARM architecture, Feiteng has created a new series of products FT-1500A and FT-2000A.

At present, domestic operating systems and domestic software products have completed the full adaptation work on FT-2000A series platforms.

FT-2000A can partially replace chip “Xeon” chips in domestic information systems and applications in key industries such as finance, telecommunications, and energy.

Considering that Feiteng has not yet conducted financing, Great Wall of China may expect to obtain equity at an alternative estimated consideration, and Feiteng realizes leaps and bounds development in 2019. It is estimated that the change in space will directly benefit China Great Wall.

The Great Wall of China is well-positioned to be autonomous and controllable, and the advantages of the CEC Group’s industrial chain linkage are outstanding, and it will become a leader in independent and controllable hardware.

Regarding Feiteng’s consolidation for the time being, and assuming that the company’s subsidiaries’ financing and sale of properties continue to bring investment income, it is expected to return to the mother’s net profit in 19-21.

50/19.

25/22.

31 trillion, corresponding to 0 EPS.

560.

66/0.

76 yuan, corresponding to the current expected PE of 18/16 / 13X, for the first time assigned an “overweight” rating.

Risk Tips 1. The risks of the acquisition of Feiteng are less than expected; 2. The risks of the party and government market procurement are less than expected; 3. The risks of the development of a safe and controllable industry are less than expected.