New stocks interpretation | With a 1193.68 times oversubscription, can the rapid innovation of Feisu (03355) DTC model support a premium for "hard technology"?

On March 23, Fiinovations (03355) will be officially listed for trading on the Hong Kong Stock Exchange. As the world's second largest online DTC network solutions provider, the company had faced obstacles in the A-share market due to internal control and disclosure issues. This successful listing marks its entry into the capital market. The market's response has been favorable, with strong demand for the company's funds. In terms of cornerstone investors, the company attracted 11 institutions including Haoran Capital, Great Holding under Yuan Yonggang, WT Asset Management, Caitong Asset Management, Juming Investment, Forthrive, SCGC Capital under Deep Creation Investment, Aether, GF Fund HK under GF SEC, Shenzhen Kaifeng Investment, and Wider Huge, with a total subscription amount of $90.22 million. At an issue price of HK$41.6 per share, without exercising the over-allotment option, the 11 cornerstone investors subscribed for approximately 42.31% of the global offering shares, demonstrating institutional investors' confidence in the company's fundamentals. The strong institutional subscription has also ignited interest in the public market. During the offering period, the public offering portion attracted approximately 197,000 subscriptions, with a total subscription amount of approximately HK$203.096 billion, representing an oversubscription rate of approximately 1193.68 times relative to the offering amount of HK$170 million, reflecting retail investors' attention and expectations for the company. This enthusiasm was already evident in the grey market trading on the eve of the listing. On March 23, Fiinovations was priced at HK$60.1 in the grey market, a 44.47% increase from the offer price of HK$41.6. Calculated at this price, a profit of HK$1,850 per board lot of 100 shares could be made without considering transaction costs. However, it is worth noting that based on the issue price, Fiinovations' IPO valuation is approximately HK$16.64 billion, while the company's post-money valuation was approximately RMB 5.4 billion in the final round of financing completed in March 2025. This means that in just one year, its valuation has nearly tripled. With the valuation already significantly increased, the market is curious about how much growth space Fiinovations still has to offer on the secondary market. Focus on the actual needs of small and medium-sized enterprises, differentiated development strategies rank at the forefront of the industry The rise of Fiinovations is a typical case of how it has differentiated itself in the traditional network equipment market, which is characterized by a solidifying landscape and numerous challenges, through its unique DTC (Direct-to-Customer) model. Its growth path clearly demonstrates how it has carved out a new market space in the red ocean of established giants. The traditional network equipment market has long been dominated by a few giants such as Huawei, Cisco, and H3C, with high industry concentration and strong competitive barriers. However, this market also faces multiple challenges: rapid technological iterations bring continuous pressure on R&D, homogenized competition erodes corporate profits, and the traditional multi-level distribution model leads to long supply chains, slow response times, and high overall costs. But challenges also bring opportunities: the actual demand for personalized, high value-for-money network equipment from a large number of small and medium-sized enterprises is difficult to be effectively met in the traditional service system, creating a substantial but long-term underserved "long-tail market." Against this backdrop, Fiinovations chose not to directly compete with giants in technology R&D, but took a different approach, breaking through through fundamental business model innovation. Its core lies in the sales model of selling directly to customers (DTC) online, cutting out all intermediate distribution channels through its self-operated platform FS.com. This model revolutionizes the value chain by not only providing customers with the ultimate value for money and a convenient e-commerce purchasing experience, but also allows the company to directly and agilely meet the demands of customers globally. Based on this, Fiinovations, with its positioning as "Network Hardware Supermarket," offers over 120,000 SKUs of own-brand products, covering a full range of network equipment from optical modules, high-speed cables, switches to fiber optic cabling management. This "Network Hardware Supermarket" layout meets the strong demand of customers, especially small and medium-sized enterprise customers, for a "one-stop shopping" solution, addressing the pain points of the traditional model that requires dealing with multiple suppliers. Additionally, Fiinovations adopts a light-asset model of "in-house design + outsourced production," not directly investing in factories, but focusing resources on product design, platform operations, and brand building. It has built a delivery network covering over 200 countries and regions worldwide, enabling efficient localized delivery and service, supporting a business structure where over 99% of its revenue comes from overseas. This series of differentiated strategies has yielded significant results, positioning Fiinovations as an undeniable force in the global network equipment market. Based on revenue in 2024, Fiinovations has become the world's second largest online DTC network solutions provider, with a market share of 6.9%; and ranks first in the high-performance network solutions (100G and above) segment globally. It has served over 500,000 customers globally, covering around 60% of Fortune 500 companies. While expanding in scale, customer quality and stickiness have also increased simultaneously. The retention rate of net income in 2024 reached 102.3%, confirming the continued purchasing and high loyalty of core customers. Of particular note, customers purchasing three or more enterprise products contributed more than 80% of total revenue, forming a solid revenue pillar for the company. The per capita income of these high-value customers has significantly increased from approximately RMB 61,700 in 2022 to approximately RMB 75,600 in 2024, reflecting the deepening cooperation and enhanced value exploration capabilities. In terms of performance, Fiinovations has seen continuous growth in revenue, while profit has fluctuated. From 2022 to 2024, Fiinovations' revenue was approximately RMB 1.988 billion, RMB 2.213 billion, and RMB 2.612 billion, with adjusted net profit for the period reaching approximately RMB 388 million, RMB 470 million, and RMB 408 million respectively. As of the first three quarters of 2025, Fiinovations returned to a growth trajectory, with revenue for the period reaching approximately RMB 2.175 billion, an increase of 11.31% year-on-year; and adjusted net profit reaching RMB 461 million, an increase of 28.41% year-on-year. Specifically, Fiinovations' continued revenue growth is primarily attributed to the steady growth of basic performance network solutions and the other two business segments. The company has capitalized on the high-performance network solution (transmission rate of 100G and above), achieving rapid growth in this segment. Revenue from 2022 to 2024 increased from RMB 473 million to RMB 831 million, with a compound annual growth rate of 32.55%, and the share of total revenue rose from 23.8% to 31.9%. In the first three quarters of 2025, it further increased to 36.2%, indicating the company's continuing optimization of its business structure towards higher value-added segments, which is also reflected in profit margins. According to the prospectus, Fiinovations' gross profit margin has shown a continuous improvement trend, rising steadily from 45.4% in 2022 to 52.6% in the first three quarters of 2025. This growth is mainly driven by two factors: the increasing gross profit margin of high-value-added high-performance network solutions, and the benefits of lower procurement costs for basic performance network solutions, which have also driven the overall gross profit margin up. The decline in adjusted net profit for Fiinovations in 2024 can be attributed to several factors. Firstly, sales and distribution expenses for the reporting period amounted to RMB 488 million, representing a 43.9% year-on-year increase, as the company significantly increased marketing spending to expand its global market share and brand influence. Secondly, financial costs surged from approximately RMB 4.655 million in 2023 to about RMB 18.544 million in 2024, a 298.4% increase. This decline in net profit in 2024 was a result of Fiinovations actively increasing its marketing, R&D, and financing investments in order to accelerate global expansion and strengthen its market position, leading to expenses growing faster than revenue growth. This is a strategic move that sacrifices current profits for long-term growth. Can the DTC model support a premium for "hard tech"? From an industry perspective, as the world's second largest online DTC network solutions provider, Fiinovations is set to benefit from the industry's growth. According to Frost & Sullivan data, the global network hardware solutions market is undergoing structural changes, with high-performance network solutions becoming the core growth engine for the industry. From 2024 to 2029, the market size of high-performance network solutions is expected to increase from approximately $13.29 billion to $20.45 billion, with a compound annual growth rate of 19.8%. During the same period, the market size of basic performance network solutions will increase from $112.8 billion to $135.5 billion, with a compound annual growth rate of approximately 3.7%. Clearly, for Fiinovations, the key industry opportunity in the coming years will be the high-performance network solutions driven by AI infrastructure, and its ability to capitalize on this industry trend will largely determine the company's valuation post-listing. Based on the information disclosed in the prospectus, Fiinovations has already completed key technological layouts for the future and is committed to establishing global product standards. The company has launched groundbreaking products including 800G high-speed optical modules and switches, silicon photonics transceivers, high-density cabling solutions, and active wavelength division multiplexers to support the network demands of high-performance scenarios such as AI. In the future, the company will continue to offer full-stack solutions compatible with mainstream open interfaces and cutting-edge protocols. For example, it has introduced a lossless network solution based on RoCE for data centers and continues to develop 800G and next-generation 1.6T switches to meet the efficient, lossless data transmission required for large-scale AI training. Additionally, the company will continue to upgrade its cloud network management platform to promote the automated deployment and intelligent operation and maintenance of compute networks. By expanding high-performance network solutions to diverse scenarios such as data centers, industrial Internet, and smart campuses, Fiinovations is dedicated to empowering industries in the AI era for digital transformation and intelligent upgrade. While seizing industrial opportunities, Fiinovations also faces prominent potential challenges and risks. Firstly, the company's business structure is highly outward-oriented. In the first three quarters of 2025, over 97% of its revenue came from overseas, with the U.S. market accounting for 54% and Europe approximately 30%. This highly concentrated overseas revenue structure makes it susceptible to multiple impacts, such as international trade friction, tariff policy adjustments, geopolitical conflicts, and volatile exchange rates. Secondly, industry competition is intensifying, putting pressure on the company's operations. Traditional network equipment giants (such as Cisco and Huawei) are accelerating their transition to direct sales (DTC) models and launching competitive product solutions for small and medium-sized enterprises, directly impacting Fiinovations' core customer base and market space. A more fundamental challenge lies in its business model itself. The company's light-asset operational model of "in-house design + outsourced production + online direct sales" involves procuring all core components externally. While this model can maintain high profit margins, it is often subject to market skepticism, as it is seen as closer to a "brand operator and cross-border retailer" rather than a hard-tech company that controls core manufacturing technology and supply chains. Especially in the high-growth track driven by AI computing power, its technological barriers, sustained innovation capabilities, and true product premium will face even more stringent tests. Therefore, although the market often compares Fiinovations to A-share hardware manufacturers to highlight its valuation attractiveness, a more suitable benchmark should be companies with similar business models such as Anker Innovations Technology and DongGuan YiHeDa Automation. From this perspective, its current valuation advantage is not as significant as it may seem.