Sector

Rating

Price targetHK$1.33

52wk H-L (HK$) 1.81-1.02

Market cap (HK$) 3,285.0m

Shrs outstanding 2,469.9m

Main ownership

12/16A 12/17A 12/18E 12/19E

EPS(HKD) 0.06 0.01 0.06 0.07

P/B(x) 1.0 0.9 0.7 0.7

P/E(x) 21.6 120.0 21.0 19.8

EV/EBITDA 8.2 13.6 9.1 8.1

Div. yield(%) 0.6 n.a n.a n.a

ROE(%) 4.3% 0.8% 3.8% 3.3%

ROA(%) 1.6% 0.3% 1.4% 1.4%Sources: Company data, Bloomberg, Anli research

Sources: Bloomberg as of 16 May, 2018

Fig.1: Valuation comps

P/B(x)

2017A 2018E 2019E 2017A

2342 HK COMBA TELECOM SY 418 1.33 120.0 21.0 19.8 0.9 0.3 0.8 -11.9 16.7 -11.3

763 HK ZTE-H suspended suspended 19.0 21.0 16.0 2.8 3.6 15.7 0.0 66.0 -12.8

947 HK MOBI DEVELOPMENT 122 1.17 n.a 11.9 10.0 0.7 -2.1 -4.0 30.0 -8.6 -21.5

1155 HK CENTRON TELECOM 31 0.29 1.4 n.a n.a 0.1 4.5 7.4 0.0 -46.3 -38.3

552 HK CHINA COMM SER-H 1,294 5.07 10.5 9.5 8.4 1.0 4.1 9.9 -1.0 8.7 -3.2

Average 37.7 15.8 13.5 1.1 2.1 6.0 n.a n.a n.a

002792 CH TONGYU COMMUNI-A 1,019 28.74 58.7 34.9 25.7 3.5 9.3 14.3 -3.6 -6.9 -19.2

300597 CH JILIN JLU COMMUN 689 18.29 101.6 n.a n.a 9.1 11.0 17.3 -6.1 -3.8 -12.3

002194 CH WUHAN FING -A 486 5.48 n.a n.a n.a 2.1 -20.0 -25.8 -5.4 -37.6 -46.9

300050 CH DINGLI COMMUNI-A 651 7.39 42.7 18.0 13.8 1.5 3.1 3.7 -1.9 -28.5 -6.1

300310 CH GUANGDONG EAST-A 1,258 8.96 33.8 23.8 17.8 2.3 5.4 6.7 -0.1 -34.3 -22.7

Average 59.2 25.6 19.1 3.7 1.8 3.2 n.a n.a n.a

CSCO US CISCO SYSTEMS 219,101 45.48 21.5 17.5 15.8 4.3 -1.1 -2.5 -1.0 32.6 18.7

JNPR US JUNIPER NETWORKS 9,368 26.83 19.1 14.7 12.7 2.2 2.5 5.0 1.2 -12.3 -5.9

IBM US IBM 131,949 143.74 10.3 10.4 10.2 7.3 4.7 31.1 -0.3 -6.5 -6.3

Average 17.0 14.2 12.9 4.6 2.0 11.2 n.a n.a n.a

Source: Bloomberg as of 16 May 2018, Anli research

Px % chg.

YTDROA (%) ROE (%)

P/E(x)

A share TMT

International TMT

Px % chg.

WTD

Px % chg.

1 yr

H share TMT

Ticker Company name Mkt Cap (US$m) Last Price

HK$1.6

TUNG LING FOK (32.79%)

Kimmy Tong/+852 23235118/kimmytong@anli.com.hk

Price performance

Research Analyst

Key indicator forecast

Price (HK$/shr) as of 16 May, 2018

May 16, 2018

Comba Telecom (2342.HK); Future looks promising; BUY

Key data

TMT

BUY

Unstable share price movement. Comba Telecom’s share price dropped significantly on May 15,2018 given large trading volume in sold shares. Management dismiss concerns raised bysignificant price movement on the market and claimed that company business operation andcashflow from operation remain stable. We attribute the share price movement to be related to thepotential reversal of ZTE’s (763.HK suspended) ban by President Trump. It may have triggeredsome investors to shift its investing position from Comba Telecom to “ZTE concept stocks”, suchas Mobi (764.HK). Thus, Mobi’s share price rebounded 23% while Comba Telecom’s share priceplunged 18% post Trump’s intervention in ZTE.

Diversified chips supply. Management mentions that any potential US-China trade war conflictshad not been affected, nor will it affect the Co.’s business structure as most of its chips not onlycome from US but also in Taiwan through third-party agents. However, they worry ZTE’s ban maydelay the supply chain schedule of orders in 1H18, especially in the network system segment.Due to seasonality and ZTE sales ban, customers’ orders in 1Q18 have shifted, and managementmentioned more orders will come in 2Q18.

Ranked Top 2 supplier for China Unicom. China Unicom (762.HK) announced CAPEXincreased by 19% to RMB50bn in FY2018E post mixed ownership reform in cooperation with BAT- Tencent (700.HK), Baidu (BIDU.US) and Alibaba (BABA.US). More importantly, Comba Telecomwon 20-30% of tender bid from China Unicom post mix-ownership reform, making them thecompany with the 2nd most tender bids. Management said the orders will improve segmentmargins in upcoming years. As one of Comba Telecom’s three major customers, we project alarger revenue contribution, up from 15% last year as CU’s new stakeholders emphasize greaternetwork capacity and productivity for FY2018E.

We reiterate our BUY rating with a TP of HK$1.60/shr, implying a 20.3% upside. We thinkComba Telecom’s result looks promising despite delay from ZTE sales ban & supply chain inFY1H18, given: 1) Potential customer’s orders increase post ZTE sales ban; 2) Uncertainty in ZTEsales ban – this may allow Comba Telecom to expand its market share in China’s Telecomservice industry; 3) Undemanding valuation as company NAV per share is HK$1.53 as of 31 Dec2017, representing a ~15% of discount; 4) Ongoing share buyback for <100m shares, boostingCo.’s full year EPS growth; 5) Management guidance of overseas revenue to increase 20-30%YoY in FY2018E due to new metro project in Bangkok; 6) Business unaffected by US-China tradewar, will remain as R&D developer in China’s 5G industry. Meanwhile, we uplift Comba TelecomEPS growth to reflect these positive factors. Key risks; Longer than expected transitional phase to5G solutions, delayed tender bidding schedules for wireless network equipment; large volatility inforeign currency prices.

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HK$/shrPts Hangseng Index (LHS)

Comba (2342 HK) (RHS)

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Source: Company data, Anli research estimates Source: Company data, Anli research estimates

Source: Company data, Anli research Source: Company data, Anli research

Source: Company data, Anli research Source: Company data, Anli research

May 16, 2018

Fig.2: We estimate an 8.1%/12% YoY growth in FY18E/19E

Fig.3: Margins plunged due to CAPEX reduction in 4G

operators in FY2017

Fig.4: Management hopeful on revenue contribution from CU to

increase in FY18 Fig.5: Company brings in new operator business

Fig.6: China's 4G network near completion, dragged down

Comba's revenue growth in FY2017 and look to 5G

Fig.7: R&D expenses tick up in preparation for China's 5G

development

2,616 3,092

2,502 2,397 2,638 2,389 2,174

1,848

1,142 1,004 885 1,005

337 286 393 221

93

-

1,000

2,000

3,000

4,000

FY14 FY15 FY16 FY17

HK$mRevenue breakdown by business

Antennas & subsystems Services Network system Others Operator business

2.9% 3.4% 3.8%6.0%

7.6% 7.0% 9.1%9.2%

11.7%12.4% 11.9%

10.3%

0%

20%

40%

60%

80%

100%

FY14 FY15 FY16 FY17

Cost structure breakdown

R&D costs Selling and distribution expenses

Administrative expenses Finance costs

Taxation charge Other expenses

48%

31% 29% 30%

14%

26% 26%

15%17%

23% 20%23%20%

17% 18%

24%

1%3%

7% 7%

0% 0% 0% 2%0%

20%

40%

60%

FY14 FY15 FY16 FY17

Revenue breakdown by clients

CM CU CT International customers Enterprise ETL

85.1% 74.3% 64.6%

5% 6%10%

6% 4% 5%

0%

20%

40%

60%

80%

100%

FY15 FY16 FY17

Revenue breakdown by region

PRC Asia Pacific Americas EU Middle East Others

6,733.2 6,770.9

5,954.3 5,563.7

6,013.9

6,735.5

-15%

-10%

-5%

0%

5%

10%

15%

20%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

FY14 FY15 FY16 FY17 FY18E FY19E

HK$mCompany revenue

26.1%28.3% 29.0%

25.8% 26.2%27.5%

3.0%4.9% 4.2%

0.9%3.2% 3.4%

2.2% 3.1% 2.6%0.5%

2.6%2.5%

0%

5%

10%

15%

20%

25%

30%

35%

FY14 FY15 FY16 FY17 FY18E FY19E

Margins analysis

Gross margin(%) Operating margin(%) Net margin(%)

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FY16 FY17 FY18E FY19E FY16 FY17 FY18E FY19E

5,954.3 5563.7 6,013.9 6,735.5 PP&E 538.0 1106.9 1,217.6 1,339.3

(4,225.9) (4,126.7) (4,437.2) (4,881.0) Goodwill & intangibles assets 237.9 1101.5 1,186.4 1,279.7

1,728.4 1,437.0 1,576.7 1,854.5 Others 691.9 368.9 426.1 466.9

173.7 123.0 135.3 148.9 Non-current asset 1,467.8 2577.3 2,830.1 3,085.9

(227.6) (331.3) (347.9) (417.5) Inventories & trade receivables 5,200.4 5883.1 6,471.3 7,118.4

(1,253.7) (1,086.2) (1,075.3) (1,239.8) Others 688.3 1020.4 919.6 1011.6

Other expenses (119.1) (41.5) (41.0) (49.2) Restricted bank deposits 178.2 234.8 281.7 309.9

Share of results of JV (0.1) (0.9) - - Cash 1,420.2 1176.1 1,058.5 1,164.4

Share of results of an associate (2.3) (1.5) (1.6) (0.2) Current asset 7,487.1 8314.4 8,731.1 9,604.3

Finance cost (47.0) (47.9) (54.1) (64.9) Total assets 8,954.9 10,891.7 11,561.2 12,690.2

PBT 252.2 50.7 192.1 231.8 Trade & other payables 3,999.1 4745.5 4,557.2 5,012.9

Income tax (99.7) (29.2) (35.0) (65.2) Current tax payable 11.2 - - -

Minority interest (0.1) 5.7 (0.2) (0.4) Short-term loans 693.7 1088.5 1,197.3 1,317.1

Net Profit 152.4 27.2 156.9 166.2 Others 70.5 69.9 83.9 83.9

Current liabilities 4,774.5 5903.9 5,838.4 6,413.9 Earning growth

drivers FY16 FY17 FY18E FY19E Long-term loans 673.2 493.9 543.3 597.6

YoY growth Deferred tax liabilities 14.2 162.5 178.7 178.7

Revenue -12.1% -6.6% 8.1% 12.0% Total liabilities 5,461.9 6,560.3 6,560.4 7,190.2

Gross profit -9.7% -16.9% 9.7% 17.6% Total equity 3,493.0 4,331.4 5,000.8 5,500.0

Operating profit -23.3% -79.9% 278.9% 20.7% Minority interest (55.5) (565.2) (565.2) (565.2)

Net profit -28.5% -82.1% 476.8% 5.9% Shareholders capital 3,437.5 3,766.2 4,435.6 4,934.8

Margin analysis

Gross margin(%) 29.0% 25.8% 26.2% 27.5% Cash flow (HK$m) FY16 FY17 FY18E FY19E

Operating margin(%) 4.2% 0.9% 3.2% 3.4% Profit before tax 252.2 50.7 192.1 231.8

Net margin(%) 2.6% 0.5% 2.6% 2.5% Depreciation 76.6 108.3 119.1 131.0

COGS/sales(%) 71.0% 74.2% 73.8% 72.5% Amortization 65.7 111.7 122.9 135.2

SG&A/sales(%) 21.1% 19.5% 17.9% 18.4% Interest income (7.9) (11.7) (12.9) (14.1)

R&D/sales(%) 3.8% 6.0% 5.8% 6.2% Working capital changes 25.6 107.5 161.3 177.5

Others 127.1 55.2 (31.5) (41.4)

Ratios FY16 FY17 FY18E FY19E CFO 539.3 421.7 551.0 620.0

Net gearing(%) net cash 11.0% 15.0% 15.0% Income tax paid (127.6) (99.4) (109.4) (109.4)

Current ratio(x) 1.6 1.4 1.5 1.5 NCFO 411.7 322.3 441.6 510.6

ROE(%) 4.3% 0.8% 3.8% 3.3% CAPEX (52.5) (114.6) (137.6) (151.3)

ROA(%) 1.6% 0.3% 1.4% 1.4% Others (483.3) (578.3) (46.9) (38.8)

Inventories days 133 120 123 135 CFI (535.8) (692.9) (184.5) (190.1)

Receivable days 239 274 302 332 Dividends paid (70.2) (19.7) - -

Payable days 266 291 279 307 Increase in debt 9.5 67.9 224.2 246.6

Source: Company data, Anli research estimates Others (46.7) 31.2 170.1 181.7

CFF (107.4) 11.5 170.1 181.7

Net change of cash (231.5) (359.1) 427.2 502.2

FCF 359.2 207.7 304.0 359.3

Company description

SG&A expenses

Research and development costs

COGS

Gross profit

Other income and gains

May 16, 2018

Balance Sheet (HK$m)

Comba Telecom: financial summary

Profit and Loss (HK$m)

Revenue

Comba Telecom (2342.HK) primarily serves as a wireless solutions provider to its customers in the PRC through its national sales and servicesnetwork. The company also offers antennas and subsystems, wireless access, and wireless enhancement to customer worldwide, and has its ownR&D facilities, manufacturing base, and sales and services teams.

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May 16, 2018

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