Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Thematic (Sector/Industry)

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In this report, we highlight the best money making ideas by identifying the winners and the losers of the sectors in the 5G value chain. For investors looking for 5G thematic ideas, we provide a snapshot of the sectors in the 5G value chain.  To distill our ideas, we focus on three positive factors: 1) does 5G generate new customers or revenue sources? 2) does it lead to market share changes? And 3) are the sectors in the upward cycle still in play? </li>
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The sectors we like in the 5G context are Internet technology platforms, smartphones/devices, 5G infrastructure vendors, PCB and small cell technology providers, and selective telecom operators. We are bullish on Southeast Asian telcos but bearish on North Asian telcos.  </li>
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Our contrarian buys in the telecom sector are <a href="https://www.smartkarma.com/entities/advanced-info-service-pcl" target="_blank" data-smartkarma-citation="entities:947:1" rel="noopener">Advanced Info Service (ADVANC TB)</a> and <a href="https://www.smartkarma.com/entities/globe-telecom-inc" target="_blank" data-smartkarma-citation="entities:1926:1" rel="noopener">Globe Telecom (GLO PM)</a>. They operate in markets with low fixed broadband penetration and weak incumbent fixed broadband operators.  5G FWA (fixed wireless access) will allow these operators to expand fixed broadband penetration and also gain market share.  </li></ul><ul type="disc">
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Avoid North Asia telecom operators. North Asian telecom stocks languished because they did not generate sufficient returns on 3G and 4G. 5G is no different.    </li>
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5G provides low priced smartphone maker <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> another opportunity to gain market share as did 4G, but it will not lead to total handset shipment growth for top brands, in our view. </li>
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The best time to take a position in telecom equipment vendors is pre-launch and in the first two years of the new generation technology launch. <a href="https://www.smartkarma.com/entities/zte-corp-h" target="_blank" data-smartkarma-citation="entities:6922:1" rel="noopener">Zte Corp H (763 HK)</a> is trading below its 10-year mean P/E.  </li>
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<h2>What’s Original?</h2>
We set out in this report to be different from others by avoiding a menu of stocks and the size of the markets in the 5G ecosystem and, instead, recommend several key thematic ideas distilled by analyzing more in-depth the drivers of three key sectors to determine where the market is overly bullish or overlooking the opportunities or where the 5G factor has not yet been priced-in. 
<ul>
<li>We analyzed the stock price performances of these sectors to review how they behaved during the 4G deployment to ascertain how they may react to 5G.</li>
<li>We conducted a proprietary analysis of the size of the potential revenue from billions of IoT connections that the industry is touting in the long term.</li>
<li>We provide a RoIC analysis of the Chinese telecom operators' 3G/4G investments to better understand why the Chinese telecom operators invest less in 5G than the figures promoted by the governments or the industry research firms.   </li>
<li>We compare our Capex forecasts with the industry projection to assess the opportunities and risks. </li>
</ul>
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In this report, we highlight the best money making ideas by identifying the winners and the losers of the sectors in the 5G value chain. For investors looking for 5G thematic ideas, we provide a snapshot of the sectors in the 5G value chain.  To distill our ideas, we focus on three positive factors: 1) does 5G generate new customers or revenue sources? 2) does it lead to market share changes? And 3) are the sectors in the upward cycle still in play? 

The sectors we like in the 5G context are Internet technology platforms, smartphones/devices, 5G infrastructure vendors, PCB and small cell technology providers, and selective telecom operators. We are bullish on Southeast Asian telcos but bearish on North Asian telcos.  

Our contrarian buys in the telecom sector are Advanced Info Service (ADVANC TB) and Globe Telecom (GLO PM). They operate in markets with low fixed broadband penetration and weak incumbent fixed broadband operators.  5G FWA (fixed wireless access) will allow these operators to expand fixed broadband penetration and also gain market share.  

Avoid North Asia telecom operators. North Asian telecom stocks languished because they did not generate sufficient returns on 3G and 4G. 5G is no different.    

5G provides low priced smartphone maker Xiaomi Corp (1810 HK) another opportunity to gain market share as did 4G, but it will not lead to total handset shipment growth for top brands, in our view. 

The best time to take a position in telecom equipment vendors is pre-launch and in the first two years of the new generation technology launch. Zte Corp H (763 HK) is trading below its 10-year mean P/E.  

What’s Original?
We set out in this report to be different from others by avoiding a menu of stocks and the size of the markets in the 5G ecosystem and, instead, recommend several key thematic ideas distilled by analyzing more in-depth the drivers of three key sectors to determine where the market is overly bullish or overlooking the opportunities or where the 5G factor has not yet been priced-in. 

We analyzed the stock price performances of these sectors to review how they behaved during the 4G deployment to ascertain how they may react to 5G.
We conducted a proprietary analysis of the size of the potential revenue from billions of IoT connections that the industry is touting in the long term.
We provide a RoIC analysis of the Chinese telecom operators' 3G/4G investments to better understand why the Chinese telecom operators invest less in 5G than the figures promoted by the governments or the industry research firms.   
We compare our Capex forecasts with the industry projection to assess the opportunities and risks. 



Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Yangtze Optical Fibre And H / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/yangtze-optical-fibre-and-h" target="_blank" data-smartkarma-citation="entities:83:1" rel="noopener">Yangtze Optical Fibre And H (6869 HK)</a> share price has been sold off due to the ASP pressure and delayed orders from the big telco such as China Mobile and China Telecom. The management has taken the necessary steps such as expense reduction and lower its debt to face lower revenues. Recently they have won a mandate from the Peruvian government to part of the National Broadband Cooperation Project with an estimated amount of USD 400 million that will improve the company's revenue and potentially gross margin due to the ability to charge potentially higher ASPs. The company has the highest net margin with the highest inventory turnover with the lowest valuation ratios compared to its peers. A USD 400 million worth of revenue by the Peruvian government, assuming only 20% will be recognized by this year-end, will add 14% to the total revenue. Brace the short term volatility and take advantage of the low valuation, BUY.

Yangtze Optical Fibre And H (6869 HK) share price has been sold off due to the ASP pressure and delayed orders from the big telco such as China Mobile and China Telecom. The management has taken the necessary steps such as expense reduction and lower its debt to face lower revenues. Recently they have won a mandate from the Peruvian government to part of the National Broadband Cooperation Project with an estimated amount of USD 400 million that will improve the company's revenue and potentially gross margin due to the ability to charge potentially higher ASPs. The company has the highest net margin with the highest inventory turnover with the lowest valuation ratios compared to its peers. A USD 400 million worth of revenue by the Peruvian government, assuming only 20% will be recognized by this year-end, will add 14% to the total revenue. Brace the short term volatility and take advantage of the low valuation, BUY. 

YOFC (6869): ASP Pressure but Saved by Peru

China

Hengtong Optic-electric Co., Ltd. manufactures and distributes optical fiber and optical cables.

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Hengtong Optic Electric (600487 CH)

Road to 5G: How to Make Money in 5G

In this report, we highlight the best money making ideas by identifying the winners and the losers of the sectors in the 5G value chain. For...

Mitchell Kim

YOFC (6869): ASP Pressure but Saved by Peru

Yangtze Optical Fibre And H (6869 HK) share price has been sold off due to the ASP pressure and delayed orders from the big telco such as China...

Henry Soediarko

Price Gauge

52-week Range

Market Cap (USDm)

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