2021-06-27-瑞士信贷集团-_新基础设施_的投资构想_112页_4mb

China Communication Infrastructure Sector Summary

Core Content

The China Communication Infrastructure Sector is a central component of the National 14th Five Year Plan, with a focus on 'New Infrastructure' initiatives. These initiatives aim to drive technological advancements in 5G networks, industrial internet, data centres, and AI to support innovation and digital transformation.

The key subsector focus includes:

• Telecom Infrastructure
• IDC (Internet Data Centre)
• Server
• Optical Module
• PCB (Printed Circuit Board)
• CCL (Copper Clad Laminate)
• Telecom Equipment

Main Points

• 5G and Cloud as Dual Drivers: 5G and cloud computing are significant drivers of new infrastructure investment. While 5G capex in China grew only 5% YoY in 2021, its prevalence has accelerated cloud adoption and edge computing.

• Hyperscale Capex Growth: China's tier 1 hyperscale capex rebounded by 14% YoY in 2020 and is projected to grow by 14% and 13% in 2021 and 2022 respectively, driven by the migration to cloud services and rising data traffic.

• IDC Market Expansion: The carrier-neutral IDC market in China is expected to grow at a CAGR of 16.7% from 2019 to 2024, reaching 6,478 MW. The market is fragmented, with 54% of demand coming from smaller players, which will likely lead to consolidation and M&A opportunities.

• Server Market Trends: The China server market has outgrown the global market due to rapid cloud expansion and strong economic growth. It is expected to grow at 13% CAGR in 2021-2025, compared to 7% globally. Companies with higher cloud exposure, such as Inspur, H3C, and ZTE, are better positioned for growth, while Huawei faces chip shortages.

• Optical Module and PCB Growth: Optical module and PCB markets are also expected to benefit from the growth in data traffic and infrastructure investment. The market for optical transceivers is particularly attractive due to the expansion of 5G and cloud infrastructure.

• Regulatory and Policy Support: The government is expected to introduce more detailed policies and regulations to support the development of new infrastructure. These include capital support, tax credits, and R&D subsidies, which will help drive innovation and consolidate the industry.

Key Investment Ideas

Investment Recommendations

• ZTE and Shengyi are highlighted for high risk-reward potential.
• Innolight, Inspur, Lenovo, and Unisplendour are expected to benefit from increased demand in datacom and cloud computing.
• 21Vianet and ChinData are also recommended as key beneficiaries, with 21Vianet being the top pick for IDC sentiment recovery.
• Telco Operators (China Mobile, China Telecom, and China Unicom) are considered value plays under the 'New Infrastructure' theme.

Valuation Table

Key Trends and Growth Drivers

• Data Traffic Growth: The global datasphere is expected to grow at 23% CAGR from 2020 to 2025, reaching 180 Zetabytes. China is the largest contributor to the consumer datasphere, with a 24.4% share in 2025.
• IT Budget Rebound: China's IT spending is expected to rebound to 7.7% YoY in 2022, driven by the need for remote work, education, and healthcare solutions.
• Digital Transformation: The trend of digitalisation continues across various industries, supporting the growth of cloud and data infrastructure.
• Cloud Expansion: China's cloud market is expanding rapidly, with public cloud server units expected to grow at 9.9% and 13.6% in 2021 and 2022 respectively.
• 5G Investment: 5G capex in China is expected to grow steadily, supporting the expansion of cloud and edge computing.

Investment Risks

• Regulatory Uncertainty: Although policies are supportive, there may be uncertainties due to the evolving regulatory landscape.
• Market Competition: The IDC market is fragmented, leading to potential competition and consolidation.
• Supply Chain Issues: Some companies, like Huawei, face challenges due to chip shortages.
• Economic Volatility: Economic conditions could affect the growth of the infrastructure sector.

Conclusion

The China Communication Infrastructure Sector is poised for significant growth due to the 'New Infrastructure' initiatives, driven by 5G, cloud computing, and digital transformation. Key players such as 21Vianet, Inspur, Lenovo, and ZTE are expected to benefit from this growth, with strong investment potential and positive outlooks. Regulatory support and market consolidation will further enhance the sector's development, making it an attractive area for investment.