23 billion military industry reorganization: China Electronics' Great Wall Computer and Great Wall Information two listed companies merged

23 billion military industry reorganization: two listed companies under China Electronics merge

China Electronics Group, which has as many as 15 listed companies, plans to merge two of them and inject them into two military enterprises to realize the securitization of military assets.

Xiong Shaochong

After the listed company involved was suspended for more than eight months, the military asset reorganization plan of China Electronics Information Industry Group Co., Ltd. (hereinafter referred to as China Electronics) was finally unveiled.

On the evening of February 24, two listed companies under China Electronics, Great Wall Computer (21.54, 0.00, 0.00%) (000066.SZ) and Great Wall Information (34.88, 0.00, 0.00%) (000748.SZ) simultaneously issued announcements stating that the two parties intend to integrate through a series of transactions such as stock exchange merger, major asset replacement, issuance of shares to purchase assets and supporting fundraising, so that the integrated new company will become China Electronics' information security platform for military-civilian integration and increase China Electronics' military asset securitization rate.

The total transaction price of the assets to be purchased under the plan is 22.934 billion yuan. As the Shenzhen Stock Exchange will conduct a post-review of the relevant documents, the stocks of the above two companies will continue to be suspended.

Founded in 1989, China Electronics is a state-owned super-large group company directly under the central government and is also China's largest state-owned IT enterprise. The industrial layout is mainly concentrated in five major sectors, including integrated circuits, software services, complete machines and key components, tablets, trade and logistics parks, covering the entire industrial chain from components to sales. The group has many high-quality assets in information security and military electronics, but the overall securitization rate of military assets is low, so improving this ratio has become one of the focuses of this asset restructuring.

According to the restructuring plan announced this time, Great Wall Computer intends to absorb and merge Great Wall Information by exchanging new shares for shares, with a total transaction amount of 19.629 billion yuan. After the transaction is completed, Great Wall Computer will be the surviving party and Great Wall Information will cancel its legal person status. The

exchange prices of Great Wall Computer and Great Wall Information are 13.04 yuan/share and 24.09 yuan/share respectively. According to this calculation, the exchange ratio between Great Wall Information and Great Wall Computer is 0.5413:1, that is, every 1 newly issued share of Great Wall Computer is exchanged for 0.5413 shares of Great Wall Information. However, shareholders of Great Wall Information also have the right to sell their shares at the above exchange price.

After the completion of the reorganization, the total share capital of Great Wall Computer will increase from 1.324 billion shares to 3.381 billion shares. China Electronics directly and indirectly holds a total of 1.154 billion shares, accounting for 34.14% of the shares and is still the controlling shareholder.

In addition to the "two-in-one", this reorganization also includes "two in and one out".

Great Wall Computer intends to dispose of its 24.32% stake in Hong Kong-listed company AOC Technology (00903.HK), which is considered to be "an asset that does not meet the positioning requirements of the integrated company and is loss-making".

AOC Technology, which focuses on the design and production of various types of desktop computer monitors and LCD TVs, was listed in Hong Kong and Singapore in 1999. Although it claims to be the "world's largest monitor manufacturer", it has been in continuous losses, with losses of US$141 million (about RMB 921 million) and US$5.4 million (RMB 35.282 million) in 2013 and 2014 respectively, and a loss of US$90.55 million (about RMB 592 million) in the first three quarters of last year.

The assets to be exchanged for Great Wall Computer are 64.98% of the shares of Zhongyuan Electronics owned by China Electronics. In addition, Great Wall Computer intends to issue shares to China Electronics to purchase its 35.02% shares of Zhongyuan Electronics, 100% shares of Shengfeifan, and 165 million yuan of debts formed by China Electronics against Great Wall Computer due to the confirmation of state-owned capital. The

estimated value of 100% of Zhongyuan Electronics is RMB 2.458 billion. The company is the former state-owned No. 710 Factory, founded in 1949. It is an important supplier of complete machines and systems in the fields of military communications, navigation and informatization in China. It is committed to achieving independent control and localization of military information security and its core software and hardware. It mainly develops and provides communication systems, independent controllable communication equipment, network equipment, information confrontation and protection and other software and hardware products and solutions, provides communication equipment and navigation equipment for major domestic military services, and occupies a dominant position in the relevant market.

The estimated value of 100% equity of Shengfeifan is 682 million yuan. Its core business is military communication systems and automated control systems. It is mainly engaged in the design, development, production and service of systems and equipment related to underwater and long-distance communications and dangerous and explosive goods dismantling. It is an important supplier of underwater communications and long-distance strategic communication systems and equipment for the Chinese military, providing the troops with underwater special communication technology systems and their main communication equipment.

China Electronics promised that the sum of the audited net profits attributable to the owners of the parent company of Zhongyuan Electronics and Shengfeifan in 2016, 2017 and 2018 after deducting non-recurring gains and losses will not be less than 570 million yuan and 220 million yuan respectively.

Great Wall Computer plans to raise supporting funds by issuing shares to no more than ten specific targets through price inquiry, with the raised supporting funds not exceeding 8 billion yuan. The raised supporting funds will be used for the investment in seven projects of the new listed company and to supplement working capital.

The fundraising projects include seven projects: autonomous and controllable key infrastructure and solutions, air-ground integrated information system, marine information security industrialization, intelligent single-soldier integrated information system construction, satellite navigation and application, intelligent environmentally friendly disassembly system for dangerous and explosive goods, and new energy and application construction of special equipment. After all the above projects reach full production, the expected revenue scale will exceed 10 billion yuan.

At this point, Great Wall Computer will be "renovated". The integrated company will become an important carrier of China Electronics' autonomous and controllable computing, as well as China Electronics' information security platform for military-civilian integration. Its future positioning is: to ensure the security of the country's fifth territory (cyberspace), and to become a provider and service operator of autonomous and controllable network security and information-based key infrastructure and solutions for the military, national key fields and important industries.

However, this seems to be contrary to the layout idea of ​​"one sector, one listed company" that China Electronics has always adhered to.

China Electronics currently controls as many as 15 listed companies, including 11 A-shares and 5 H-shares. Among them, Nanjing Panda (12.180, -1.35, -9.98%) (600775.SH, 00553.HK) is an A+H-share listed company focusing on the electronic equipment industry, East China Science and Technology (6.83, -0.76, -10.01%) (000727.SZ) is mainly engaged in the panel business of new flat panel displays, China Software (23.500, -2.61, -10.00%) (600536.SH) focuses on software and information development business, Shenzhen Technology (8.42, -0.94, -10.04%) (000021.SZ) is positioned as advanced manufacturing, Great Wall Computer is positioned in self-controllable computers and servers, Great Wall Information continues to adhere to financial electronics, medical information technology and high-tech electronic products as its main business, Shanghai Belling (14.160, -1.57, -9.98%) (600171.SH) belongs to the integrated circuit design sector. Zhenhua Technology (16.91, -1.88, -10.01%) (000733.SZ) is a military information security platform under China Electronics, which seems to collide with the positioning of the integrated Great Wall Computer.

As the national team of the national information security industry and military electronics, China Electronics shoulders the mission of national information security construction and independent and controllable development. Information security is one of the three major strategic directions that China Electronics has long formulated, and is also known as China Electronics' "No. 2 Project". The "No. 1 Project" and "No. 3 Project" are new display and information services respectively.

Liu Liehong, general manager of China Electronics, once said that the company will focus on building an independent and controllable information industry system, "taking information network security products as the focus of China Electronics' new round of economic development and structural adjustment, creating domestic operating systems, domestic core chips for computers, servers, and network switching equipment, and meeting the country's electronic informatization needs for independent and controllable products." This direction is also favored by industry insiders.

Since the implementation of the military reform opinions in November last year, the military electronics sector has attracted much attention. "The background of military reform is the informatization of war, so we are optimistic about the benefit transmission of military informatization enterprises in the process of military reform." Changjiang Securities analyst Mo Wenyu said that the research and development of new weapons will pay more attention to informatization, and in terms of military power structure, the proportion of high-tech military services will increase, and private enterprises with strong information technology levels are expected to benefit from the trend of military-civilian integration.