Analyst Research Report Snapshot


Comba Telecom (2342 HK, HK$2.76, OP): Initiate coverage with Outperform




KGI Greater China


05 Dec 2013





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4G/LTE launch in China a boost 1H13 results poor on structural changes on Chinese telecom capex Comba Telecom reported 1H13 (FY ends December) revenue of HK$2.2bn and a net loss of HK$151mn, down 16% and flat YoY, respectively. Chinese mobile carriers are cutting capex on GSM and 4G/LTE capex has stalled, resulting in poor short-term visibility for telecom equipment makers. Though 4G/LTE licenses will be issued soon, Comba Telecom may not benefit until after 1Q14 given the late cycle nature of its business. 4G/LTE launch delay or capex reduction biggest risks to our thesis Comba Telecom has invested significant R&D resources in developing new product lines like small cells but has yet to turn any of the China Mobile provincial trials into contracts. Other near-term risks include below guidance capex spending from China Unicom, rising receivables on slower payment terms, and poor cost controls. Low baseline with 27.7% upside potential – Initiate with Outperform 2013 has set a low baseline for Comba Telecom. As capex from Chinese telecoms kicks in, we will see revenue start to pick up in 2014 and normalize by 2015. We believe now is a good time to accumulate shares. We initiate coverage of Comba with Outperform.

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