2010 Communication Equipment Industry Investment Strategy Analysis
The 3G investment peak emerged in 2009, and the absolute value of investment will remain at a high level in the next three years, with main equipment and supporting equipment industries still benefiting significantly. By the end of Q3 2009, 3G users accounted for 12% of mobile users and 30% of new mobile users, and equipment suppliers are riding the 3G wave. In the first three quarters, cumulative 3G investment reached RMB 96.1 billion, only half of the 2009 plan and less than one-third of the RMB 300 billion planned 3G investment. 3G investment drove the communication equipment industry to achieve a profit growth of 28.1%. In the future, investments in nationwide 3G network construction, network supplementation, and O&M, as well as 2G/3G co-construction and broadband investment, will keep industry investment at a high level, and the equipment industry will enter a golden period. In the 3G era, the market share of domestic equipment suppliers has exceeded 64%. Meanwhile, the overseas market will gradually recover next year, and the financial crisis presents a once-in-a-lifetime opportunity for domestic equipment suppliers. The global top ten equipment suppliers will face significant reshuffling, and the communication equipment market share will become more concentrated, during which Chinese equipment suppliers will further increase their market share. Therefore, we have every reason to be optimistic about the development prospects of domestic equipment suppliers.
Global telecom spending recovers slowly with significant regional structural differences. According to Infonetics Research data, global carrier CAPEX will reach USD 290 billion in 2009, a slight year-on-year decline. We expect that from 2010 to 2012, global carrier CAPEX will grow slowly year-on-year, with the focus shifting to emerging markets such as Asia-Pacific, Africa, and the Middle East.
China's telecom capital investment peak continues. The three major carriers planned fixed asset investment of RMB 330 billion in 2009, up 13% from 2008. Based on current progress, as of July 2009, fixed asset investment of RMB 148.99 billion had been completed, accounting for 45.1% of the annual total. We expect that actual fixed capital expenditure in 2009 will be slightly lower than planned, with some investment deferred to next year. After the concentrated network construction investment in 2009, telecom investment will gradually decline from 2010 to 2011, but the absolute value will remain at a historical high, and industry prosperity will be maintained for three to five years. FTTX and network supplementation demand are new investment growth points beyond 3G.
FTTx is expected to become another feast after 3G. Four major drivers are accelerating FTTx adoption: (1) personal customers stimulating explosive growth in bandwidth demand; (2) significant cost reduction in Passive Optical Network (PON); (3) operators using optical networks as an important tool for full-service competition; (4) policy drivers.
Investment structure differences highlight opportunities in supporting industries. The supply shortage in the optical fiber industry no longer exists, but revenue growth from rapid capacity expansion will offset the impact of price reductions; the proportion of cabling industry in capital expenditure remains basically stable, and Sunsea Telecom is expanding capacity through raised funds, with market share expected to increase; after the network construction peak, network testing and maintenance will increase, raising its proportion in capital expenditure, benefiting the industry as a whole.
2010 communication equipment industry investment logic. Industry prosperity will drive both earnings and valuation of listed companies to rise. On this basis, select stocks with confirmed earnings growth while also considering trading opportunities in optical communication stocks brought by the issuance of the smart grid framework document and individual stock catalysts.
----Source: Communication Technology Network