2014/07/07

FDD License-the dust settles

Telecommunication Sector

CT and CU ready to go, ZTEs 4G contract

settle down

The 2nd 4G License FDD-LTE has launched finally

China Telecom and China Unicom were allowed to developed mixed 4G

network trial licenses in 16 Cities by MIIT PRC on June 27th 2014. And
MIIT also pointed it will issue the official FDD-LTE, when the
condition is matured. This issuance meets our estimation in our report
<<China Mobile(0941.HK)-4G is still illusory revenue growth turns
difficult>>, in which we estimated the MIIT will issued the 2nd 4G
license FDD-LTE in the middle of this year.

New License is most positive for CT

After the issuance, CT announced it will develop 4G service in the

above 16 cities in the middle of July, and the clients there will be
12.6% of the total. CU also said it will operate 4G business service in
the above 16 cities, and the Clients there will be 14.3% of the total.
We think the issuance this time is most positive for CT, because: 1>
Better fusion with 3G, decrease the loss of 3G clients: We used
mentioned in our April 11th report that after MIIT issued the TD-LTE
license, which is better for CM, the number of 3G Monthly new added
Clients of CT decreased heavily and kept depressed in the following
months. We think no matter whether the fact of the decrease above is
expression of weakness "by CT or truth, it really shows CT is eager
for FDD-LTE. After the issuance, because the new 4G will be better
fused with 3G, the number of 3G clients will increased. 2> The 4G
charge fee is cheaper than other, lower entry level: CT announced it 4G
charge fee plan immediately. It was cheaper that CU and CM(see figure1),
and it mainly focused on the package plan while was not very strong in
individual voice, data and information charge. We think the cheaper 4G
charge fee will lesson the entry level, which will encourage more
middle or lower class clients to use 4G Service when compared with the
high class clients strategy of CM, and also increase the number of 4G
clients.

Analyst: William He
SFC License : BBQ909
william.he@concordcapital.com.hk

(852) 34057343

Share performance
25000

2050
1950

24000

1850
23000

1750

22000

1650
1550

21000

1450
20000

1350

19000

1250

HSI Index

Source: Bloomberg

FDD drives service provider, ZTE maintain buying

We reiterate the Buy rating of ZTE group(763.HK). The 4G

construction in mainland China will support the revenue of ZTE. In our
report <<ZTE Group(0763.HK)-Operating Business turned around, revenue
depends on 4G BS Construction>>, we mentioned that ZTE has got 26% and
34% share respectively in the two times 4G procurement contract of CM,
and got 40% share in CT. With the nearly 700,000 Base station
construction in mainland China, it will bring nearly 140 Bn capital
expenditure according to our estimation. If ZTE group could maintain
20%~30% market share, it will earn nearly 30 Bn revenue. With the
issuance of new license, CT and CU will mainly focus on 4G construction
and promotion, and also fulfill 4G contract with provider.

Concords Rating in Telecommunication Sector

Stock Name

Stock Ticker

Rating

Target Price

China Telecom

728.HK

Buying

4.65 HKD

China Mobile

941.HK

Neutral

74.00 HKD

China Unicom

762.HK

Neutral

11.83 HKD

ZTE Group

763.HK

Buying

21.88 HKD

TCL Telcom

2618.HK

Buying

10.70 HKD

Please read the important notice on the last page

HSCITC Index

2014/07/07
FDD

4GFDD-LTE

2014627()
16
4GTD-LTELTE-FDD
LTE FDD 4 11
(0941.HK)4G
20144GFDD-LTE

Analyst: William He
SFC License : BBQ909
william.he@concordcapital.com.hk
(852) 34057343

7164G
25000
12.6%7
4G14.3% 24000
FDD1> 3G 23000
3G411 22000
201312TD-LTE 21000
3G 20000

19000
FDD-LTE
FDD-LTE3G
3G2> 4G
HSI Index
FDD-LTE
4G

4G
4G
4G
4G4G

4G
66763.HK4G
4G
26%34%4G40%
701400
20~30%300
4G
4G

728.HK

4.65 HKD

941.HK

74.00 HKD

762.HK

11.83 HKD

763.HK

21.88 HKD

TCL

2618.HK

10.70 HKD

2050
1950
1850
1750
1650
1550
1450
1350
1250

HSCITC Index

14G

(
(

58

500M

50

88

700M

200

59

500M

100

76

400M

200

79

700M

200

106

800M

300

99

1G

300

138

1G

500

136

1G

500

129

1G

500

158

2G

500

166

2G

500

169

2G

700

196

3G

500

199

3G

700

238

2G

1000

268

3G

1000

296

4G

1000

299

4G

1500

338

3G

2000

396

6G

2000

399

6G

2000

588

6G

4000

596

11G

3000

599

11G

3000

()