Wangsu Science and Technology:An important step towards globalization
To acquire CDNetworks & CDN-Video in cash.
Wangsu announced a major asset restructuring plan, under which it will acquire in cash97.82% of Korean CDN service provider CDNetwoks’ outstanding shares (or 84.9% ofCDNetworks’ total equity) and a 70% stake in CDN-Video. The acquisitionconsideration for CDNetworks/CDN-Video amounts to ~Rmb1.275bn/51.63m. As of 30Sept 2016, Wangsu had over Rmb5bn cash and cash equivalents.
CDNetworks is a global CDN service provider.
According to Wangsu’s announcement, CDNetworks was established in 2000 andmainly provides CDN services and DDoS protection services. It has the biggest marketshare among Korea’s CDN service providers and is ranked among the top three CDNservice providers in Japan. As of end-2016, the company had over 180 nodes globally,covering 98 cities in 49 countries and serving around 1,300 clients. CDN-Video is aRussian CDN service provider, with 30 nodes and 400 plus clients. In 2015,CDNetworks posted revenue of Rmb618m and net profit of Rmb23.43m.
An important step towards globalization.
We believe the acquisition, if approved, 1) will greatly enrich Wangsu’s overseas noderesources while helping the company set up more globalized operation and salesteams. It should also increase the company’s brand recognition overseas, facilitatingfaster and more effective overseas expansion; and 2) will enable both parties topromote their competitive products leveraging each other’s resources and channels. Forexample, CDNetworks’ global video conference system can be integrated intoWangsu’s product lines, while Wangsu’s live streaming service-related products can besold to Korean and Japanese clients.
Valuation: maintain Buy rating.
As the restructuring plan is still pending shareholders’ approval and approvals fromrelevant regulators, we leave our earnings estimates unchanged for now. We maintainour Buy rating and DCF-based price target of Rmb80.00 (WACC = 7.3%).
