As we all probably already know, China is impending a 3G rollout. Probably readers are not as familiar as the implementing 3G network that is to be rolled out in PRC as I am. My field of interest and research is in mobile communications and networks.
There are many standards of the IMT-2000* and the one that China is probably going to implement is the TD-SCDMA standard. A collaboration of the China Academy of Telecommunication Technology (CATT) and Siemens Corporation.It's mode of operation is the DS-CDMA (1.1136 Mcps) using the TDD(time division duplexing)duplexing method. The key features of this standard is that the RF channel bit rate is up to 2.227Mpbs. Use of smart antenna technology is fundamental (but not strictly required) in TD-SCMA.
The current system employed in China is still the GSM standard, which is what we folks here in Singapore use currently. M1 tried to introduce CDMA here way back which i could remember but failed. What a pity. The wireless subscriber growth in China is a phenomenon. See here. Research firm, BDA China, forecasted the number of 3G subscribers in China to grow at a compound annual growth rate (CAGR) of 268 per cent from 2006 to 2010. By 2010, the number of 3G users will hit 210 million, accounting for 34 per cent of the total number of the phone subscribers in the country. The number of the total mobile users is expected to grow at a CAGR of 9 per cent from 2005 to 2010 to hit 617 million.
The TD-SCDMA standard relies on its existing core GSM infrastructure. Just by adding a high data rate equipment at each existing GSM station, you can implement the 3G network. As mentioned earlier, a key fundamental feature of the TD-SCDMA system is the antenna. The radio channels are 1.6KHz in bandwidth and rely on smart antenna , spatial filtering and joint detection to achieve several times more spectrum efficiency than GSM. As such this standard TD-SCDMA is easily implemented and inexpensively added into existing GSM systems.
Some industry pundits expect China to build networks based on the world's 2 most popular 3G standards, the WCDMA standard in Europe and CDMA 2000 which is backed by US Qualcomm Inc with the TD-SCDMA technology being used for support rather than a standalone system.
Let me make a bold prediction here, China will implement their own 3G standard, TD-SCDMA. Research started in 1998 and the proposal approved in 1999. Chinese pride is involved here, we have all seen how proud they are when they successfully launch to space.
Now lets discuss on how we can take advantage of this knowledge in investment. Knowledge of the technology behind it can be advantageous to a savvy investor. "Know what you buy ...." A recent report by leading Chinese financial portal, CNFOL.com estimated that around RMB 172 billion will be spent on 3G networks rollout in 2006 and 2007, and 70%(RMB 120 billion) of this investment will be wireless coverage related.
I have identified 3 companies listed in SGX as potential beneficiaries of the 3G network.
1. Ace Achieve
2. HengXin Technology
3. LongCheer
1.Ace Achieve
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I have covered on the fact that Ace Achieve is currently undervalued compared to what the market has given for its price. Ace Achieve provides customised solutions to its customers and is involved in business of installing of repeaters** for its customers. Ace Achieve's book order continues to look strong however net profits is lower. Being a small company, it is being bullied into having to give credit to its customers which is why high book orders dont really translate to higher share prices. However, an interesting point I observed is that the book orders are for GSM repeaters. This could lead to some interesting possibilities. Notice the fact that TD-SCDMA can be build over existing GSM system. Probably, the mobile operators are sliently confident on TD-SCDMA being implemented in PRC. And why not ? The phenomenon subscription rate has pushed the mobile operator to expand its coverage needs to satisfy their customers.
My Fair Value on Ace Achieve
2.HengXin Technology
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HengXin Technology is one of the most easy business to understand and is positioned to take advantage of the growing telecommunication industry in PRC. HengXin's core business is in the manufacture of coaxial cables used in mobile communications and other telecommunications equipment.
HengXin is enjoying the largest market share in the PRC of around 35 percent for the manufacture of coaxial cables for mobile.
Looking ahead >>>>>>>>>>>..
> HengXin is immensely successful in passing on higher cost of copper to its customers.
> It has increased its annual production capacity of RF coaxial cables to more than 30,000 km. Further consolidating its dominance!
> Expanding sales and marketing network to Chengdu, Chongqing, Wuhan, Urumqi and Hehehaote before the end of the year. We have already seen its initial success with a foreign Korean company. This is definitely very exciting development. Wow.
> HengXin planned to expand its product range to include accessories like connectors and antennas so as to provide customers with a one-stop valued added manufacturing service.
> Plans to leverage on its 3G compatible products to enhance its market share further in view of the anticipated issuance of 3G licences this year.
All these are positive developments for HengXin Technology moving ahead. Single product multiple applications in demand.
It's major customers can be categorised as following:-
i) Major telecommunications operators - these include the various branches or subsidiaries of China Unicom, China Mobile, China Telecom and China Netcom.
ii) Equipment manufacturers - these include Huawei Technologies Co Ltd, ZTE Corporation, Siemens (China) Limited, Lucent Technology (China) Co Ltd, Shanghai Bell Samsung Mobile Communication Co Ltd, Shanghai Datang Mobile Communications Equipment Co Ltd and Nortel Network (China) Co Ltd.
iii) Cable television networks - these include the cable television network and broadcasting stations in the various provinces and cities.
My Fair Value on HengXin Technology
3.LongCheer
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LongCheer could be the closest proxy to the widespread rising style conscious consumerism of the Chinese in PRC and also hitch onto the rising adoption of the mobile lifestyle in China. Mobile handsets has practically been unirreplacable part of our lives. Can you imagine going out without your handset? It's as if we are born with handsets(obviously not I was born with pagers. Just joking). My first mobile was the Motorola StarTec X , then Nokia 6650, Nokia 6610, 3 Samsungs, 2 Sony Ericssons and now the lastest addition SE W810i. Imagine the mini fortune, I had spent on phones. Maybe you might not change handsets as often as I do. I work on them for research and development though. I would like to highlight the current widespread spending generation of Chinese. The need for a better quality of life. Not to be caught dead pulling out a outdated phone model from your pocket. Chinese are particular about the face-value factor. Laughs.
LongCheer is a relatively new listing here in SGX. So far, its results released has been impressive. LongCheer achieved y-o-y sales and earnings growth of 102% and 69% respectively in the 3Q06. Gross margin improved from 16.1% to 19.1% q-o-q driven by new products. Staff size has grown considerably from 300 to 600 which bodes for further expansion.
LongCheer is deeply undervalued given its rosy growth prospects. LongCheer has a cash position of RMB 429.9M and I expect another generous dividend payout from the company. CIMB-GK has a TP of S$1.59 while DBS Vickers has a fair value of S$2.00 for LongCheer. Currently, I have a fair value of S$1.20 for LongCheer which is approximately 67% undervalued from the current share price of S$0.71.
Cheers
Niversphere.
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Please read the prospectus and perform your analysis before making any investment decision. The above does not constitute a recommendation to apply for this company. I will not be liable for any losses incurred by anyone who invests based solely on the above-mentioned information
Terms used in this article:
**Repeaters: often used by mobile operators to provide dedicated coverage for hard to reach areas, such as buildings, or in valleys or tunnels. They are bidirectional in nature, and simultaneously send and receive signals from a serving base station.
IMT-2000: The standard for 3G cellular networks is called IMT-2000(international mobile telecommunications beyond 2000). IMT-2000 is the overall name for the 3G standard under ITU(international telecommunication union).
References used:
1)Wireless Communications Principles and Practice 2nd Edition by Theodore S. Rapport
2)Principles of Wireless Communications and Data Networks 2nd Edition by Benjamin PremKumar and Cai Jianfei.
News Articles:
1)Siemens sees delay in China 3G licenses to H1 '06
1)UPDATE: China Mobile Feb Growth Outpaced China Unicom
Thursday, July 27, 2006 | Posted by Norman Oh at 5:23 PM |
Technical Side of 3G Rollout in China.
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15 comments:
Thank you for your interesting analysis.
Ace Achieve - I met the MD when he was in Singapore to present his company. The co. had come a long way. I am concern about the following:
How portable are their softwares to other 3G systems to other countries?
All their contracts so far are sales in China. As you rightly pointed out, they could be easily bullied by the 3G operators. They don't have much leverage to demand down payment (50%?) from the operators. This is quite risky.
Hengxin - This is an interesting co. Does anybody know what are the 3 patents and 5 pending patents about?
Contrary to what analysts are worried about copper prices, co-ax cables, especially the leaky types, do not use as much copper as say, electrical cables.
What wins the technology over other international brand names eg Andrew and RFX are the ability to design and supply high end co-ax eg fire-retardancy, better signal spreads, and low power dissipation.
Otherwise, they are only known as 'cheap supplier' of co-ax. Not much future there. I have not read any analyst report on what patents they have.
Can anybody help?
Longcheer - Looks like it is doing well in GSM handsets?
Will it do well in 3G handsets?
I understand 3G handsets sales in Singapore do not take off well, because of lack of contents from the operators. There are no 'killer applications' that the humble GSM handsets cannot do. Will China market be any different? I shall appreciate more reports from analysts.
You are correct to say that 3G did not fly as expected when it hot Singapore. The government "seems" to push the technology adoption onto the mobile service providers here. If you look at South Korea and Japan, they have been adopting CDMAII and W-CDMA for some years. Actually, you have a point that we have a lack of content providers. And that is exactly a gap to be filled here. We are not as dynamic a society as we will like to be. We are too reliant on the government. That's why you see MediaCorp stepping in. However if you look at South Korea, Taiwan and Japan for example. They are many entrepreneurs in the service of content providers. Take for example ring me back tones, call waiting tones and mobile games providers. We as a scoiety has much to catch up.Unless someone proves successful, then you have another group of Singaporeans chasing you. A HongKong based China company has already been providing Comics for mobile content and ironically they do provide this service here in Singapore. We need more dynamism from this City.
On a serious note, I welcome any business proposal regarding Mobile Content. Email me : niversphere13@yahoo.com.sg
Cheers
Hi,
You got me there when you mentioned what patents that have. I have sent in an email to them and hopefully they can answer the question. As for HengXin Technology achieving the first Korean deal is fantastic. Right here, we can only do secondary research. It's a big recognition to be recognized. I believe HengXin does have its design capabilities and needs time to prove itself. To say they can reach the stage of Andrew Corp in a short period is almost impossible.A significant time period for R&D is needed. Having said that, they have collaboration R&D projects with institutions like the Shanghai Cable Research Institute and Zhejiang University, Electronics Information Technology and System Analysis Institute.
This is where we come to barriers to entry and economic moats. Although the product coaxial cables are easy to understand. We do have to consider that the manufacturing and R&D gone into the product is what differentiates it and creates an uneven playing field. Contray to what Economics teaches. Lol.
FYI. LongCheer bought over the 3G technology from Datang.
Regards
I think unlike 2G phone which was readily accepted due to the ease of usuage, the 3 G concept is quite abstract for the middle age people hence the lower acceptance. Another reason is also the cost of 3 G technology.Some more if you want to send photos or video they are a lot of other ways you can do there like youtube and friendster.
hence unlike the 2 G technology which was unique at that time the advantages of 3 G is not so unique.so maybe the lack of acceptance
Another weakness with 3G rollout. The costs of infra. investments are extremely high. You need many more base stations and the higher frquency ranges are not very penetrative. Does anybody know the regulatory radio coverage requirements in China for 3G? Why should the mobile subs migrate to 3G when their GSM handphones can be used almost anywhere in China? I think the question of 'reach' for a mobile sub to migrate to 3G is critical in the case of China.
I dont agree that there are no reasons to switch over to 3G network for a large country like China.
For the government, 2008 Olympics.
For the individual, video calls, streaming live data, on the go information, up-to-date.
I dont see why the 3G network cant be popularized in PRC.
Cheers
Ace Achieve - Those interested about telecoms backend processing softwares/engines/middlewares as such, might take a look at the BT-Indian JV company. Tech Mahindra will start marketing its IPO in London and Singapore today. That's what I learnt from the Financial Times dated yesterday. I do not know who to get a copy of the propectus? It should make interesting reading.
Beijing Olympics 2008 - This symbolism for China (both CCP & people) has seared into their collective memory for too long, as a coming of age for a powerful nation, confident of its rightful place in the world. Failures wiil bring down the CCP as the final arbiter for the ruled. Success will continue the reign of the CCP, and China's readinesss to engage the world, post 2008.
How confident is the CCP? I saw Pres. Hu on TV. He has full crop of black hair (dyed?), looks robust and very, very alert. Compare him with, say, Pres. George Bush or PM Blair recently. They look aged, wild, and confused. Pres. Hu could afford to pay for the antics of Taiwan Pres., and the inconsistent policies of the USA Gov't.
But they would not be allowed to spoil the Olympics. I believe measures are in place internally and externally; even, if necessary, to insulate the China economy from the USA economic wild swings right up to the Olympics.
China will pay for a successful party.
Hence all the gizmos will be there, including the selected rollouts of 3G.
The party will go on. Even the young people are confident about their future (see article in today's Sunday Times). There are not much serious thoughts of emigration.
Yet foreigners are harping about their banking systems (Economist mag. has been doing that since at least 5 years ago), inflated real estates, energy and safety crises and so on.
I think the foreign reportings have been missing the 'forest for the trees'. In that, they do not understand the resilience and the zeal of the chinese people. They have forgotten how Japan rose from the ashes of the last War, and how the Koreans picked themselves up from their civil wars.
I am betting on the Chinese economy.
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