20140115-DBS_Group-China_Telecom_Sector_39页_861kb

报告摘要

Summary of DBS Group Research on 4G Impact on Telecom Sector (15 January 2014)

Core Content

The document provides an analysis of the impact of 4G technology on the Chinese telecom sector, focusing on both operators and equipment suppliers. It outlines the investment implications of the 4G license issuance in December 2013 and the expected capex cycles for the next fiscal years.

Main Points

4G License Issuance: The Chinese government issued TD-LTE (4G) licenses to all three major telecom operators (China Mobile, China Telecom, and China Unicom) in early December 2013, which has triggered a new capex cycle in the telecom sector.
4G Capex Forecast: The document estimates 4G capex to be Rmb52bn in FY13 and Rmb102bn in FY14. Spending patterns are back-end loaded, with some capex spilling over into FY14.
Preference for Equipment Stocks Over Operators: Due to policy uncertainties related to tax reform and MVNOs, telecom equipment stocks are preferred over operators. These stocks are expected to benefit more from the 4G capex cycle.
Top Picks for 4G Proxies: Trigiant (1300 HK) is highlighted as the best 4G proxy due to its high capex exposure (90%+), good earnings predictability, and undemanding valuations. CCS (552 HK) and ZTE (763 HK) are also key beneficiaries.
Operator Preferences: Among operators, China Unicom (762 HK) is the top pick, followed by China Telecom (728 HK), and China Mobile (941 HK) is rated as Hold due to its stable dividend yield and potential challenges in 3G/4G network quality.

Key Information

4G Technology Assignments

TD-LTE: All three operators have been issued licenses, with FD-LTE licenses expected later.
Technology Maturity: China Telecom and China Unicom have more mature technologies (CDMA, WCDMA) compared to China Mobile's TD-SCDMA and TD-LTE.
Handset Choices: Operators with FD-LTE and WCDMA technologies have more diverse handset options.

Capex and Base Station Trends

China Mobile: Expected to install 300k 4G base stations in FY14 and has a clear roadmap for TD-LTE.
China Telecom: Plans to install 60k LTE base stations in FY13, with 30% allocated to integrated TD/FD-LTE networks.
China Unicom: Expected to install 16k-31k base stations for FD-LTE over the next few years.
Total Base Stations in China: Projected to grow from 2.1m in FY12 to 2.5m by end-FY14.

Share Price Performance

Pre-4G License: Share prices of telecom equipment stocks like Comba and ZTE showed strong performance after the 3G license was issued in 2009, following a delayed capex cycle.
Post-4G License: Share price performance for 2013-2014 is mixed, with some stocks showing significant upside (e.g., Trigiant with 124% upside) and others showing flat or negative performance.

Valuation and Investment Ratings

Company	Price (HK$)	Target Price (HK$)	Upside/Downside (%)	Recommendation	FY14F PE x	Market Cap (HK$bn)
China Mobile	77.55	77.00	-1%	Hold	10.8	1,559
China Telecom	3.72	5.00	34%	Buy	11.8	301.1
China Unicom	10.84	15.00	38%	Buy	13.8	257.8
ZTE	15.22	22.00	45%	Buy	16.9	52.3
Comba	2.59	2.50	-3%	Hold	10.2	4.0
CCS	4.45	5.80	30%	Buy	9.0	30.8
Trigiant	2.05	4.60	124%	Buy	4.3	2.3
China Fiber Network	1.8	n.a.	n.a.	NR	5.7	2.6

Multi-Dimensional Evaluation of Equipment Stocks

Company	Capex Exposure	Timing	Earnings Predictability	Valuation (FY14 PE)	Market Cap (HK$bn)
Trigiant	94%	Initial build-out	29% earnings growth in 1H13	4x	2.3
CCS	36%	Initial build-out	Flattish earnings in 1H13	9x	31
ZTE	30%	Initial build-out	Loss making in 1H13	17x	52
Comba	80%	Wireless optimisation (1-2 years later)	Loss making in 1H13	10x	4

Risks

Capex Scaling Back: A potential scaling back of 2G/3G investments could lead to lower aggregate capex.
Earnings Volatility: Companies like ZTE and Comba may suffer from earnings volatility due to non-recurring factors and uncertain revenue streams.
Investor Sentiment: Trigiant's share price correction may affect investor confidence, though management has increased its stake, indicating optimism.

Conclusion

The 4G license issuance has initiated a new capex cycle, favoring telecom equipment stocks over operators. Trigiant is the top pick for 4G proxies, with strong exposure to domestic capex and good valuations. China Unicom and China Telecom are preferred over China Mobile in the operator segment due to superior 3G/4G technology and network quality. The analysis suggests a multi-dimensional approach to evaluating telecom equipment stocks based on capex exposure, timing, earnings predictability, valuation, and investment risks.

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