[HK IPO Subscription] Fibocom Analysis

Company Name: $FIBOCOM(00638.HK) (00638.HK, hereinafter referred to as the "Company")

Sponsor: CITIC

Greenshoe: CITIC

Cornerstone Investors: 44.84%

Subscription Period: October 14 - October 17

Listing Date: October 22

Main Business: Wireless communication module provider

I. Sponsor and Greenshoe

CITIC is the sole sponsor. Since Mechanism B, stocks sponsored by CITIC have consistently opened with gains of over 40% on the first day, showing excellent performance.

When you start doubting yourself and feel useless, just look at CITIC's greenshoe.

So far in 2024, only Chifeng Gold has used some greenshoe quota. Other times, it couldn't be used because there was no break issue.

It's like making money while lying down.

IPO Rating: ★★★★★

II. Cornerstone Investors

There are a total of 10 cornerstone investors, accounting for 44.84% at the mid-point pricing. The number is not small, and the proportion is significant.

The top cornerstone investor is named Qindao Gantong, accounting for 19.4%. This cornerstone was specifically established by the Jiangxi SASAC for this project in June this year. Given its nature and being the largest cornerstone, the project may be linked to the performance of a certain leader.

Among other cornerstone investors, there are insurance companies (PICC, CPIC), securities firms (GF Securities, Guotai Junan), as well as OFC and individual investors.

Overall, the cornerstone investors are decent, with state-owned capital accounting for the majority, which is relatively stable.

IPO Rating: ★★★★

III. Margin Situation

As of 5 PM today, the margin is 8.6 times, with a margin amount of 2.51 billion. The amount is similar to yesterday's Jushuitan, but the multiple is lower due to the larger scale.

Mechanism B, fixed clawback of 10%, public placement of 13.508 million shares, totaling 135,000 lots, which is twice that of yesterday's Jushuitan. It should not be difficult to win the lottery.

However, there is a lot of supply. If the margin does not surge, the selling pressure may be significant.

IPO Rating: ★★★

IV. Valuation and Fundamental Analysis

The company is the world's second-largest wireless communication module supplier, with a market share of 15.4%. It ranks first in some niche segments, such as smart home (36.6%) and consumer electronics (75.9%), making it a leading company.

In recent years, the company's revenue and profits have maintained high growth. However, in the first half of this year, the company unexpectedly saw a "face change" in performance, with revenue down 9.02% year-on-year and net profit down 34.66% year-on-year.

The main reason is that in July 2020, the company's 49%-owned subsidiary, Ruiling Wireless, acquired the global automotive front-end module business assets of Sierra Wireless, Inc., significantly enhancing the company's competitiveness in the automotive front-end module business. In July 2021, the company acquired the remaining 51% stake in Shenzhen Ruiling for RMB 520 million in cash and stock, achieving 100% ownership.

Since then, Ruiling Wireless's automotive wireless communication business has performed exceptionally well. From 2022 to 2024, it contributed net profits of RMB 12.57 million, RMB 190 million, and RMB 250 million, accounting for 3%, 33.6%, and 37.9% of the company's net profit in the same period, respectively.

However, in July 2024, the company sold all the assets related to Ruiling Wireless's automotive wireless communication business to Europasolar, leading to a year-on-year decline in the company's revenue and profits for the full year of 2024 and the first four months of 2025.

As the company's core high-quality asset, why did the company sell it?

It turns out that in August 2023, the U.S. Congress pressured the FCC (Federal Communications Commission) to include Chinese-made cellular modules in the "controlled list." On one hand, the company's customers explicitly requested Fibocom to take measures to eliminate supply chain risks. If Ruiling Wireless's automotive modules were included in the controlled list, it could lead to customer loss, order cancellations, and even trigger contract breach clauses.

On the other hand, if the controlled list were implemented, the company would face up to RMB 300 million in goodwill impairment, which would be a significant blow to the company's performance.

Therefore, the company had to make a painful decision to sell the related assets. In the short term, this will inevitably affect profitability, but in the long run, it may not be entirely without benefits.

First, it naturally avoids trade risks in advance, exchanging business for business, and improving customer stickiness.

The company's top five customers have cooperated for more than 8 years, always selecting five out of six customers (A-F), which is very stable.

Second, the company is gradually transitioning to AI and robotics. Starting in the second half of 2024, the AI and robotics business officially began, with robotics achieving from zero to one, and AI solution revenue more than doubling in the first four months of 2025.

According to the prospectus, 55% of the funds raised this time will also be used for the innovation and development of AI and robotics. Selling the automotive module business, on one hand, provides a large amount of funds, and on the other hand, allows the company to better focus on the strategic goals of AI and robotics.

Most importantly, this deal is not a loss for the company. Even from the time of the full acquisition of Ruiling Wireless in 2022, Ruiling Wireless's valuation doubled in two years, and it also contributed net profits during these two years, making it a huge profit.

Therefore, overall, although the sale of Ruiling Wireless was a reluctant move under trade disputes, in the long run, it may help the company focus on more imaginative sectors, such as robotics and AI, which is also one of the reasons why the company's stock price has risen from 20 to 30 since the announcement of the sale last year.

But is there a possibility that the company is hyping concepts? I think there is. The actual controller has reduced holdings by RMB 1 billion in four years, was warned by the Shenzhen Stock Exchange, and is addicted to cashing out.

Finally, let's look at the valuation. Since the company is the first AH communication module stock, there is no strong comparable company, so ZTE can only be used as a rough comparison. The company's current A-share market value is RMB 23.3 billion, and the Hong Kong stock valuation is RMB 17 billion at the mid-point price, with a discount rate of 38%. ZTE has a discount of 28%. This pricing has some room, but the space is relatively limited.

IPO Rating: ★★★

Conclusion:

The valuation is relatively reasonable, and there is state-owned capital backing. However, the recent sharp drop in A-shares (a 5% discount rate in one day today) is hard to bear. If there is no rebound, coupled with the possibility of upper limit pricing, there is a certain risk of breaking the issue price. So whether to subscribe or not, it's better to wait until the deadline is near and see the trend of A-shares.

But will CITIC's stock become the first Mechanism B stock to break the issue price?

IPO Rating: ★★~★★★★