New Stocks Analysis | Cig Shanghai seeks to list on both "A" and "H" markets: Revenue fluctuations increase, with about 90% of income coming from overseas.

Hong Kong's "A+H" camp welcomes AI concept stocks again. On October 12, Shanghai Cig Shanghai Co., Ltd. (hereinafter referred to as "Cig Shanghai") conducted a listing hearing on the Hong Kong Stock Exchange, moving one step closer to its Hong Kong listing. On April 28, 2025, the company officially submitted its listing application to the Hong Kong Stock Exchange and received a notice of overseas issuance approval from the China Securities Regulatory Commission on September 30. The company is a global industry leader in providing key infrastructure components to support the development of artificial intelligence, mainly generating revenue through the sale of broadband, wireless, and optical module technology products. In November 2017, the company went public on the Shanghai Stock Exchange, with a total market value of 26.376 billion yuan as of the close of October 17. According to Frost & Sullivan data, Cig Shanghai is one of the few companies that offer the three aforementioned technology products to global customers. In 2024, based on sales revenue, the company ranked fifth in the global comprehensive optical and wireless connectivity equipment industry, with a market share of 4.1%. With this listing in Hong Kong, what kind of development story will the company write in the Hong Kong stock market? Annual revenue exceeds 3.6 billion yuan, with about 90% of revenue coming from overseas. Looking at the revenue structure, Cig Shanghai's sales revenue mainly comes from its optical connectivity solutions, broadband solutions, and wireless technology solutions. Cig Shanghai's optical connectivity solutions enable efficient connection and seamless communication within and between computing clusters. According to Frost & Sullivan data, the company is one of the first in the global OWCD industry to develop 800G and 1.6T optical module products. As of the last feasible date, its 800G optical module represents the most advanced mass-produced optical module product globally, while the 1.6T optical module is one of the leading research products in the industry. The company's high-speed broadband solutions enable efficient transmission between computing clusters and end-users. As of December 31, 2024, Cig Shanghai's XGS PON products accounted for over 30% of the global 10GPON market by shipment volume. At the same time, it was also the first in the world to achieve mass production of 25GPON and was the first to develop 50GPON. As of the last feasible date, 25GPON is the fastest mass-produced product globally, and 50GPON is set to become the next generation mainstream product in the broadband field. Cig Shanghai's wireless solutions enable high-bandwidth, fast transmission, and low network latency between computing clusters and end-users. Specifically, the company is one of the first in the global OWCD industry to develop and mass-produce Wi-Fi 7 products. The company also collaborated with Google Fiber to introduce the industry's first 20G uplink Wi-Fi 7 gateway for home and small business owners, providing over 10Gb/s network service, enhancing high-speed interconnection, and providing extensive coverage. Currently, the company is in the early stages of developing the next generation mainstream Wi-Fi 8 products in the Wi-Fi field. With strong core competitive advantages, Cig Shanghai's overall revenue and profits are on an upward trend. According to the prospectus data, from 2022 to 2024, the company achieved revenues of approximately 3.784 billion yuan, 3.085 billion yuan, and 3.65 billion yuan, with year-on-year growth rates of -18.5%, and 18.3% in the last two years respectively; and net profits of approximately 171 million yuan, 94.965 million yuan, and 167 million yuan, also showing an upward trend. In this regard, it is not difficult to see that Cig Shanghai has a certain strength and economies of scale in the field of optical modules. However, the high concentration of large customers and the large proportion of overseas revenue indirectly reveal the risk factors of the company's performance fluctuations. The booming golden track vs. the fiercely competitive "red sea battlefield" Cig Shanghai's core track is in the field of optical communication modules (optical modules) and telecommunications access equipment, and its business is closely related to data communication and telecommunications networks. This track is the "highway" infrastructure of the digital economy, with tremendous development potential and currently has three obvious driving factors. Firstly, there is a major explosion in AI and algorithmic capacity demand, which is the strongest DRIVE currently. Large-scale language models, high-performance computing, AI training and inference applications have unprecedented requirements for data transfer speeds within and between data centers. This directly drives the explosive growth in demand for high-speed optical modules (such as 800G, 1.6T). Cig Shanghai's focus on the data center optical module business is at this forefront. Secondly, there is the continuing upgrade of global data centers and expansion of cloud services. Cloud computing, big data, streaming media services, etc. are continuously growing, requiring data centers to evolve from 100G, 400G to 800G and above architectures. Each upgrade and renovation of data centers brings about a large-scale demand for optical module replacement, ensuring the market's sustainability. Thirdly, there is the continuous construction of 5G and the promotion of F5G (Fixed Network Fifth Generation). On the telecom side, the continuous deployment and deep coverage of 5G base stations require a large number of optical modules for front-haul, mid-haul, and back-haul. At the same time, the global fiber-to-the-home (FTTH) upgrading to gigabit and even multi-gigabit (F5G) is driving the demand for related telecom access devices and household terminal products. Driven by the core DRIVE mentioned above, the track Cig Shanghai is in is also a high-growth, high-growth track. According to Frost & Sullivan data, from 2020 to 2024, global sales revenue in the OWCD industry increased from USD 32.4 billion to USD 54.6 billion, with a compound annual growth rate of 13.9%. Due to iterative acceleration and continuous evolution of cutting-edge technologies, global sales revenue in the OWCD industry is expected to reach USD 111.8 billion by 2029, with a compound annual growth rate of 15.4% from 2024 onwards. In this regard, Cig Shanghai also has two major development advantages that help the company continue to anchor the industry's development dividend. On the one hand, the company has successfully entered the supply chain systems of many global top internet cloud service providers and telecom equipment manufacturers (such as Google, Microsoft, Arista, etc.) through acquisitions and its own development. Obtaining certification from these top clients is a great barrier in itself, and once entered, stable orders can be obtained, closely following the industry's cutting-edge technology requirements. On the other hand, the company has positioned itself early in the research and production of high-speed optical modules such as 400G and 800G. Particularly in the 800G product, the company has achieved mass shipments, allowing it to seize the market opportunity in the early stages of the AI algorithmic demand explosion and gain high market attention. However, it is important to note that the optical module industry is a "red sea market" with domestic giants such as Zhongji Innolight, Eoptolink Technology Inc., Accelink Technologies, as well as international competitors such as Coherent and Cisco. Intense competition leads to frequent price wars, sustained downward pressure on product gross margins, and the company's profit margin has been at a low level for a long time, with profit margins of 4.5%, 3.1%, and 4.6% from 2022 to 2024, respectively. Furthermore, as this industry is technology-driven, there is a high risk of technological iteration, requiring large R&D investment. Specifically, "one generation of products, one generation of technology" is a true portrayal of this industry. In order to avoid being eliminated, the company must continuously invest significant amounts in the research and development of next-generation products (such as 1.6T, CPO co-packaged optics). If there is a misjudgment of the technology roadmap or a lag in R&D progress, it will quickly lose market competitiveness. The company's R&D to revenue ratios were 7.1%%, 8.9%, and 8.8% from 2022 to 2024. In conclusion, Cig Shanghai is in a high-growth, high-growth golden track, with key advantages in successfully engaging top customer supply chains and having the ability to mass-produce high-speed products. This allows it to directly benefit from the industry dividend brought about by the demand for AI algorithmic capacity. However, the company is also in a fiercely competitive, rapidly iterating, and thin profit margin industry environment. Therefore, for Cig Shanghai, while there are great development opportunities, the challenges are equally daunting.