The 'Huawei' of Private Network Communications, Leveraging PDT to Break Through the Industry Landscape

The company is a leading player in China's private network wireless communications and a global leader in private network wireless communications equipment. It ranks second in the global private network wireless communications terminal market, holding a 12.6% market share in terminals in 2010. Its main business includes two-way radio terminals, trunking systems, and other wireless communications equipment.

Private network communications technology has evolved through three stages: from analog conventional communications to analog trunking communications, and then to digital trunking communications. It is currently in a critical transition phase from analog trunking to digital trunking communications. According to data from Hank Consulting, the global private network communications market was valued at RMB 62.4 billion in 2009 and is expected to reach RMB 83 billion by 2013, with a compound annual growth rate of approximately 7%. Among this, the digital product market has a compound annual growth rate of 20% (IMS Research).

In the private network communications field, the company resembles Huawei in the telecommunications industry, possessing strong competitive advantages: compared with domestic manufacturers, it has superior technology and brand advantages; compared with overseas manufacturers such as Motorola and Kenwood, it has comparable technical strength while also offering significant cost advantages and rapid response capabilities.

Private network communications involves national public security, and major powers and political alliances need to cultivate their own technology suppliers. The United States has cultivated Motorola, Europe has cultivated EADS, and China and developing countries need their own suppliers. Therefore, we believe that Hytera, as the overall leader of the PDT group, is most likely to become China's own major supplier, breaking through the industry landscape and becoming the third-largest supplier globally after Motorola and EADS.

Based on this, we are optimistic about the rapid growth opportunities brought by the large-scale construction of domestic PDT, as well as the rapid growth of overseas DMR and TETRA. The company faces favorable growth prospects and is in a period of performance reversal and accelerated growth. We project EPS for 2013-2015 at RMB 0.55, RMB 1.01, and RMB 1.57 respectively, with a compound growth rate exceeding 68% over 2013-2015. We initiate coverage with an "Accumulate" rating.