AsiaInfo Reboots With Founder's Return, Big Investor's Departure

Key Takeaways:

• Early internet entrepreneur Edward Tian is leading a restructuring of two companies he founded as he effectively retakes control of AsiaInfo Technologies
• Even after a downward adjustment, Tian is still paying a premium of more than 40% for the shares that will give him control of AsiaInfo Technologies

By Lee Shih Ta

Entrepreneur Tian Suning, better known in Western circles as Edward Tian, was dubbed “Mr. Internet” when he helped to co-found AsiaInfo in 1993. Now, more than three decades later, this early trailblazer in China’s private telecoms software sector is trying to breathe new life into his mature corporate offspring through a restructuring of two publicly listed companies both bearing the original AsiaInfo name.

Under the restructuring, major shareholders of AsiaInfo Technologies ASNFF, a telecoms software provider, are selling their equity to Tian. That deal is seeing Tian-controlled AsiaInfo Security  purchase the roughly 20% of AsiaInfo Technologies’ shares held by an investment vehicle controlled by Citic Capital. 

Big Premium

AsiaInfo Security has about 9.6% voting rights in AsiaInfo Technologies via holdings by Tian. Thus, completion of the share transfer will give AsiaInfo Security about 29% of AsiaInfo Technologies’ voting rights, effectively making the former a holding company for the latter. But recent pressure on AsiaInfo Technologies shares, including a 42% decline in the stock price this year alone, led the parties to sign a supplemental agreement with an adjusted purchase price.

According to an announcement from AsiaInfo Technologies earlier this month, the two sides agreed to adjust the sale price down from an original HK$9.45 to HK$7.70 per share. They further lowered the price to HK$7.29 in light of AsiaInfo Technologies’ payment of a final dividend of HK$0.41 per share late last year. That brings the total value of the deal to between HK$1.3 billion ($167 million) and HK$1.4 billion.

Even after the big downward adjustment, the new purchase price still represents a premium of more than 40% to the stock’s latest price of about HK$5 per share.

AsiaInfo Security mainly engages in the information security business, and its establishment traces its roots to AsiaInfo’s desire to list its shares in China’s A-share market.

AsiaInfo Holdings was previously listed on the Nasdaq until being taken private in 2013 by Citic Capital, CBC Capital and other institutional investors. At that time, Tian returned to the company as its chairman. A year later, the company split off its information security business as AsiaInfo Security, which was based in Nanjing. The rest of the company, AsiaInfo Technologies, listed in Hong Kong in 2018, while AsiaInfo Security listed four years later in Shanghai.

But AsiaInfo Security has consistently come under pressure since its IPO. In 2023, the company’s revenue fell 6.6% year-on-year to 1.61 billion yuan, and it recorded a loss of 290 million yuan. Its gross margin also gradually slipped from 59.7% in 2019 to 47.8% last year.

AsiaInfo Security’s size pales compared with AsiaInfo Technologies, whose revenue reached 7.94 billion yuan last year, or nearly four times that of its smaller sibling. AsiaInfo Technologies’ total assets at the end of last year stood at 11.48 billion yuan, more than triple the 3.4 billion yuan for AsiaInfo Security.

To facilitate its swallowing of its larger sibling, AsiaInfo Security will set up a new joint venture with a company under the Tianjin branch of China’s State-owned Assets Supervision and Administration Commission, the owner of most national state-run companies. The venture will then take out bank loans to set up an overseas company, which will acquire AsiaInfo Technologies. By that time, Citic Capital will have divested itself from AsiaInfo Technologies. 

Coordinated Development And Cross-Selling

A pairing between these two sister companies could take some financial and operating pressure off AsiaInfo Security, giving it more resources from its larger sibling. AsiaInfo Technologies currently trades at a price-to-earnings (P/E) ratio of about 8 times, slightly higher than ZTE’s (0763.HK; 000063.SZ) 7 times, but far less than the 19 times for global networking equipment and software giant Cisco CSCO.

AsiaInfo Technologies is facing its own pressures as its traditional telecoms customers wind down their spending following a rapid build-up in China’s early 5G era. That has led AsiaInfo Technologies to look for new business lines as replacements. According to its interim report, the company recorded 1.2 billion yuan ($169 million) in revenue from its three new business operations, namely digital intelligence, vertical industries digitalization and operations support systems (OSS), in the first six months of the year. That figure was up 10% year-on-year, accounting for 40% of total revenue, even as AsiaInfo Technologies’ overall revenue fell 8.8% year-on-year during the six-month period.

Progress in its new businesses seems to have eased some investor concerns. On Aug. 15, the day after the official release of the interim report, the company’s shares rose 12% to HK$5.22, marking a notable rebound after plummeting in mid-July when the company warned it would post a loss for the first half of the year. 

New businesses the company is cultivating include development of information infrastructure in key areas such as energy, transportation and government affairs, fields where AsiaInfo Security has expertise and a robust customer base from years of working in the field. Thus, the pair of AsiaInfo companies could take advantage of each other’s strengths to gain ground in multiple key information infrastructure sectors by sharing business opportunities and cross-selling each other’s products. 

Tian pointed out in an internal speech that “the two companies are at a critical moment of their development” and vowed to “build a system that enables integration of the company’s network, cloud and security” capabilities.” He said the company would use products and services supporting such an integrated system to “promote infrastructure development for China’s digital economy.”

With such proclamations, Tian appears ready to launch a new era of AsiaInfo 2.0. In his 1.0 version, he was a “Mr. Internet” who was among the first of a new generation of entrepreneurs seeking to bring the internet to China. In his 2.0 version, he hopes to reshape his large business empire and steer it in a new direction away from its traditional telecoms carrier customers. 

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.