Good News on Listing | Frost & Sullivan Assists Huanlian Lianxun Technology Co., Ltd. to Successfully Go Public in Hong Kong (1473.HK)

RingLink Technology Co., Ltd. (hereinafter referred to as 'RingLink Technology') successfully listed on February 19, 2021, with a global issuance of 250 million shares priced between HK$0.52 and HK$0.58, expected to raise up to HK$14.5 billion at most. Frost & Sullivan (Frost & Sullivan, hereinafter referred to as 'Frost & Sullivan') provided exclusive industry advisory services for RingLink Technology's listing, and hereby warmly congratulate them on their successful listing.

During this listing process in Hong Kong, Frost & Sullivan mainly undertook the following tasks: helping the company accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the company's competitive advantages, assisting the company, investment banks, and other intermediaries in completing the relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business, and other important sections), helping the company communicate with the Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the company in completing various feedbacks from the Stock Exchange on industry-related issues.

Connectivity products usually refer to devices embedded with electronic or optical electronics, sensors, software, and network connectivity, enabling the device to send and receive signals or data. Connectivity products are mainly used in telecommunications infrastructure, data centers, the Internet of Things, and other fields that require electrical and electronic transmission/reception of signals or data regardless of geographical location and technical medium. Connectivity products include (i) wireless microwave networks; (ii) fiber optic networks connecting subways to regional and long-distance areas; and (iii) commercial networks for cellular, fixed, personal, and private use.

Telecommunications and data communication connectivity product distributors play an important role in narrowing the functional gap between upstream component manufacturers and downstream customers in the industrial chain. Traditionally, telecommunications and data communication component manufacturers sell products to distributors or designated authorized distributors. Due to the diversity and complexity of the telecommunications and data communication connectivity industry, it is a market practice to have distributors as intermediaries between the industry, except for giant customers such as Huawei who have the bargaining power to purchase directly from manufacturers. These distributors mainly only perform 'buying and selling' and logistics functions. In addition, some distributors have design and technical capabilities, that is, service providers. Different from distributors who only distribute telecommunications and data communication components, service providers with design and technical capabilities mainly integrate the functional gap between upstream component manufacturers and downstream customers through technical support, solutions, and value-added services.

The telecommunications and data communication connectivity industry highly relies on suppliers. Due to product upgrades, product innovation, or the involvement of new technologies, any action by upstream component manufacturers will affect the development of the connectivity industry. Product upgrades by upstream component manufacturers will encourage telecommunications and data communication connectivity product distributors to offer upgraded versions to their downstream customers. At the same time, due to product innovation or new technologies involved by upstream suppliers, service providers may need to develop new platforms or integration service packages. Service providers that can provide supporting services are very important to component manufacturers, communication module manufacturers, and network system equipment suppliers because they can provide advanced network connectivity products and comprehensive solutions, thereby improving efficiency, enhancing operations, and reducing costs.

The Importance of Distributors to Upstream Manufacturers:In addition to directly selling to downstream communication module manufacturers and network system equipment suppliers, upstream manufacturers usually sell domestically through distributors. Reasons include: China has many downstream customers with different business scales. Therefore, it is difficult for upstream manufacturers to reach each customer through their own distribution channels. Telecommunications and data communication connectivity product distributors leverage their advantages in logistics, bulk procurement, and sales to bring benefits to suppliers and customers. More importantly, telecommunications and data communication connectivity product distributors and their engineering teams provide technical support and on-site application support to achieve compatibility between components produced by different manufacturers so that downstream customers can incorporate components from different channels into the manufacturing and assembly process of their products. In addition, distributors also provide many other value-added services that are difficult for upstream manufacturers to achieve or have low cost-effectiveness, such as design, pre-purchase consulting, after-sales service, and customer relationship maintenance.

Telecommunications and data communication connectivity product distributors mainly sell products from component manufacturers. In addition, they also provide supporting services for communication module manufacturers and network system equipment suppliers, such as customized solutions and technical support. There are two types of distributors in the market: one with design and technical capabilities and the other without such capabilities. Communication module manufacturers and network system equipment suppliers provide various modules and equipment to end-users in the telecommunications and data communication connectivity industry.

In recent years, driven by the development of the telecommunications and data communication industry, the telecommunications and data communication connectivity products distribution market has been continuously developing. In 2019, the total revenue of the telecommunications and data communication connectivity products distribution market reached RMB172.7 billion, with a compound annual growth rate of 15.8% from 2014 to 2019. In 2024, the total revenue of distributors (including service providers) of telecommunications and data communication connectivity products is expected to reach RMB379.8 billion, with an expected compound annual growth rate of 17.1% from 2019 to 2024. With the popularization of 4G users and the upcoming launch of 5G networks, the growing demand and expectations for service quality from downstream customers are expected to have a positive impact on the revenue of service providers capable of providing value-added services, creating more growth opportunities. The revenue expectations of service providers are expected to continue to grow in the next few years, reaching RMB502 billion, with an expected compound annual growth rate of 21.4% from 2019 to 2024.

The telecommunications and data communication connectivity products distribution market in China has hundreds of service providers. In 2019, the total revenue of the top five service providers accounted for about 18.7% of the total revenue of service providers in the telecommunications and data communication connectivity products distribution market in China. RingLink Technology's revenue in 2019 reached RMB8.354 billion, ranking third and accounting for 0.5% of the total revenue of the telecommunications and data communication connectivity products distribution market in China. In addition, calculated by market share, it accounts for 4.4% of the telecommunications and data communication connectivity products distribution market.

Advanced Technology from Upstream Component Manufacturers:The development of distributors is closely related to the technological progress of upstream component manufacturers. Technological progress enables distributors to stay at the forefront of industry innovation while improving efficiency, operating conditions, and saving costs. With engineering expertise and good relationships with upstream manufacturers with leading technologies in the industry, distributors seize opportunities to absorb new technology development information, thereby having competitive advantages and being in a favorable position in providing solutions to downstream customers.

Increasing Demand for Connectivity Products and Value-Added Services:Ridesharing, intelligent manufacturing, connected homes, etc. are continuously being widely applied. The increasing demand for connectivity products creates opportunities for distributors, providing professional Internet of Things application development services and delivering value-added services and point-to-point solutions to downstream customers. Therefore, comprehensive solution services are used to assist downstream customers in providing technical support and solving problems as well as facilitating research and development. By saving downstream customers' time and labor costs, a win-win result is achieved. Due to the high efficiency, professionalism, and convenience of comprehensive services, most downstream customers in China prefer to choose comprehensive services. Therefore, the increasing demand for connectivity products and value-added services continues to drive the further development of China's telecommunications and data communication connectivity products distribution market.

The Increasing Popularity of Distributors with Design and Technical Capabilities:More and more communication module manufacturers and network system equipment suppliers tend to use the technical support services of distributors with design and technical capabilities because cooperating with such distributors can accelerate the product research and development cycle and shorten the time for new products to be launched on the market. With the professional support of these distributors, it helps reduce product development costs. The increasing popularity of distributors with design and technical capabilities helps shorten the product cycle and promote technological progress.

Government Policy Support:The Chinese government has announced several policies to regulate and support the development of the telecommunications and data communication connectivity products distribution market. Relevant policies include 'Made in China 2025', the '12th Five-Year Development Plan for the Electronic Information Manufacturing Industry' promulgated by the Ministry of Industry and Information Technology (MIIT), the 'Information and Communication Industry Development Plan (2016 - 2020)', and the 'Guidelines for Priority Development Areas of High-tech Industrialization' promulgated by MIIT. With the support of the Chinese government, the market expectations for telecommunications and data communication connectivity products are expected to develop rapidly in the near future.

Expanding Downstream Applications:The development of downstream applications provides a large number of opportunities for the telecommunications and data communication connectivity products distribution market, especially large enterprises capable of providing value-added services. In recent years, due to the increasing demand for emerging industries such as smart cities, smart wearable devices, ridesharing, and intelligent manufacturing, the booming development of emerging technologies such as 5G communications, the Internet of Things, and vertical industries has promoted the rapid development of the connectivity products distribution market. At the same time, some large-scale enterprises providing value-added services and solution services are expanding solution services in emerging fields to gain more opportunities. The prospects of demand growth indicate that the connectivity products distribution market has great prospects.

Resource Integration and Increased Industrial Concentration:Telecommunications and data communication connectivity product distributors focus on integrating the value chain, expanding industrial applications, while maintaining scale and advantages. Currently, due to mergers and acquisitions of upstream component manufacturers, the industry is integrating distributors. In addition, leading connectivity product distributors are actively promoting value chain integration, resulting in a higher degree of industrial concentration.

Various Requirements from Customers:Due to the customization requirements of various categories of telecommunications and data communication connectivity products and from different downstream customers, connectivity product distributors need to provide diverse customized components. With the rise of new vertical industries, connectivity products and technical solutions will continuously put forward new or upgraded requirements to connectivity product distributors. In the future, the ability to quickly respond to customer needs will become an important competitiveness for telecommunications and data communication connectivity product distributors.

Sino-US Trade War:Since 2018, China and the United States have started a trade war. The US government has imposed tariffs on several commodities, including electronic equipment and technology products imported from China. In response, the Chinese government has imposed tariffs on a series of goods imported from the United States. Facing the trade war, companies that rely on products or technologies imported from the United States have been deeply affected. For example, the US reinstated a ban on ZTE and Huawei purchasing components from the US telecommunications industry and prohibited the use of relevant software from US companies, seriously hindering the development of ZTE. The Sino-US trade war may also have a negative impact on other companies in the telecommunications and data communication industries. However, the trade war can also promote industrial integration in China and the emergence of national brands with high-tech levels.

Talent Shortage and Rising Labor Costs:Talent is a key competitiveness of the telecommunications and data communication connectivity products distribution market. Connectivity product distributors with rich experience and professional R&D technology teams usually provide high-quality Internet of Things and network connectivity products as well as comprehensive solutions to downstream customers. In addition to the shortage of professional talent reserves with rich experience, rising labor costs are also a major challenge, increasing the cost pressure on connectivity product distributors. Therefore, talent training and reserve may become an important strategy for Chinese telecommunications and data communication connectivity product distributors.