/Hong Kong China Technology

China Technology Weekly 31 May 2013

China Technology sector/company news for the week 25-31 May 2013

Top news. The one-year subsidy program for 360buy mall ranking (smartphones/tablets/PCs/TVs) energy-efficient home appliances expired on 31 May. Change Change According to the China Market Monitor (CMM), Top-8 smartphone models in rank Top-8 tablet models in rank energy-saving TVs surged from a 32.1% share of the 1. Nokia 1010 – 1. Apple iPad mini – PRC TV market in June 2012 when the subsidy 2. Apple iPhone 4 – 2. Apple iPad 4 (Wifi) – program was introduced, to an 88.5% market share 3. Samsung Galaxy Note II +1 3. Apple iPad 2 (Wifi) – by April 2013. CMM reported that within the one-year 4. Apple iPhone 5 -1 4. MediaPad (16g) +2 period, energy-saving appliances had generated 5. Samsung S75621 – 5. Samsung Tab 2 (10.1”) -1 RMB242.3b in sales revenue. 6. 2 – 6. Witcool X5 +2 7. Nokia 1000 -1 7. Samsung Tab 2 (7”) -2 Other highlights 8. Huawei G525 – 8. Galaxy NOTE N5100 –  German Chancellor Angela Merkel said that Germany firmly opposes a trade probe initiated Change Change by the EU into imports of Chinese mobile Top-8 notebook models in rank Top-8 TV models in rank telecommunications products. 1. Sony SVE1512S7C – 1. Konka LED 32E320N – 2. ThinkPad E430C – 2. Changhong LED32B2080 +2  Due to the rapid adoption of smartphone and 3. Acer E1-471G – 3. Sony KLV-32R426A +4 tablets, IDC expects global PC shipments to be 4. Lenovo ThinkPad E530C – 4. Changhong LED32538 – down 7.8% YoY in 2013F, lower than the previous 5. Lenovo ThinkPad E430 – 5. LED32K200 -2 estimate (down 1.3%). Global PC shipments in 6. Lenovo ThinkPad X230i – 6. Hisense LED50K320DX – 2014F are expected to decline 1.2% YoY. 7. Lenovo Y400M – 7. TCL L43F3310 – 8. Dell Ins14RR-3316B – 8. TCL L32E11 -1  IDC forecasts the size of the PRC “big data” market will expand from US$77.6m in 2011 to Top-10 free Android mobile Change US$617m in 2016F, representing a CAGR of apps download in rank 51.4%. 1. MM Mall –  The Ministry of Commerce announced that total 2. Taobao – e-commerce transaction volume in 2012 3. Meituan.com – exceeded RMB8,000b in 2012, up 31.7% YoY. 4. qunar – PRC online retail transaction volume exceeded 5. Baidu news – RMB1,300b in 2012, up 67.5% YoY. 6. Huanle Majiang – 7. Sohu video – CCBIS observations and comments 8. Da Zhong Dian Ping –  In our view, the expiry of the energy saving Source: 360buy.com, Mobile Market subsidy will only have a limited impact on leading PRC TV makers including (751 HK, Outperform) and TCL Multimedia (1070 HK, Neutral). Upon expiry of the subsidy, we expect both leading TV makers to focus on cutting edge, higher-ASP and higher-margin

products to enhance market share. Candy Tai  We believe big data will be a key growth driver (852) 2844 3606 [email protected] for the China IT market and mobile internet.

Tencent (700 HK, Not Rated) and Qihoo 360 Ronnie Ho (QIHU US, Not Rated) are enjoying first-mover (852) 2533 2486 advantages. [email protected]

Please read the analyst certification and other important disclosures on last page China Technology Sector 31 May 2013

Sector news

Communications sector

Mobile will finish 1,200 units of 4G base station in Beijing by 2013F

 TD-FI devices will be installed in Beijing buses such that citizens with WIFI-equipped smart devices will be able to make use of the 4G network in the buses.

http://tech.sina.com.cn/t/3g/2013-05-27/10388381738.shtml

Samsung is leading the PRC smartphone market in 1Q13 (Strategy Analytics)

 Total 1Q13 smartphone shipments in the PRC reached 67.4m units, comprising a 32% share of global smartphone shipments.

 Samsung’s smartphone is leading the PRC market with shipments of 12.5m units, followed by 8.1m units from Huawei.

 Lenovo ranked third with 7.9m smartphone unit shipments, while /ZTE/Apple shipped 7m/6.4m/6.1m smartphones in 1Q13.

http://tech.sina.com.cn/t/2013-05-27/17568382555.shtml

Germany opposes European Union (EU) probe into Chinese telecom products

 German Chancellor Angela Merkel said that Germany firmly opposes the trade probe initiated by the EU into imports of Chinese mobile telecommunication products.

 Merkel said Germany is ready to take firm action against the planned probe.

http://tech.hexun.com/2013-05-28/154577717.html

ZTE becomes the fastest-growing smartphone vendor in US

 According to Strategy Analytics, ZTE smartphone sales in the US surged 85.7% YoY in 1Q13.

 ZTE's growth in the US can be put down to the company’s increasing share of the no-contract phone market, achieved by leveraging ZTE’s close relationships with major carriers such as AT&T, Boost Mobile/Sprint, T-Mobile, MetroPCS, Cricket Wireless and Tracfone.

 In 1Q13, ZTE was the third-largest smartphone manufacturer in the US no-contract market with 17% market share.

http://tech.hexun.com/2013-05-27/154559823.html

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China Technology Sector 31 May 2013

China Mobile targets overseas growth as it prepares to launch a mobile Skype competitor

 In June, China Mobile is going to launch an in-house mobile VoIP and messaging app, called Jego.

 Jego targets international users with a need to keep in touch with friends, family and others in China. China Mobile International Business Development Manager, Derick Li, says the app is first and foremost a competitor to Skype.

 Jego provides free in-app text messaging along with number of other standard features, such as push-to-talk voice messages, photo sharing, video calling and multimedia sharing. Its core functionality is the ability to make voice calls to landlines and mobile phones.

http://tech.sina.com.cn/t/2013-05-31/07278397866.shtml

After only six years, Jingdong mall handset revenue was up 300 fold

 Handset sales revenue of Jingdong mall surged from RMB30m in 2007 to RMB10b in 2012.

 Jingdong expects the handset sales revenue to double in 2013F.

http://tech.hexun.com/2013-05-31/154699108.html

PC & tablet sector

IDC lowered its global PC shipment target for 2013F

 Due to the rapid adoption of smartphones and tablets, IDC expects global PC shipments to be down 7.8% YoY in 2013, lower than previous estimate for a 1.3% decline.

 IDC expects global PC shipments in 2014F to be down 1.2% YoY.

 PC shipments in 2017F will be 333m units, down from 363m in 2011.

http://tech.hexun.com/2013-05-29/154622291.html

Foxconn, Mozilla Expected to Introduce Firefox Tablet on 3 June

 According to local news outlets, Foxconn is planning to announce a partnership with Mozilla on 3 June. Media sources have said the two companies will introduce a tablet that runs on the Firefox mobile operating system.

http://digital.sina.com.hk/news/-7-1367807/1.html

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China Technology Sector 31 May 2013

Technology sector

Cisco will acquire energy IT management company JouleX for US$107m

 Cisco announced that it will acquire JouleX, the privately-held enterprise energy IT management company based in Atlanta, for US$107m.

 JouleX lets customers monitor energy use of all devices attached to a network. Reports on usage can stream in from a data center, rack, slot or business-unit level, among others. Customers can keep an eye on carbon emissions, set alerts based on energy use and enforce policies in order to lower costs.

 Cisco already has Energy Wise energy-management protocol for tracking energy use inside networks. JouleX will complement Energy Wise product, thus allowing IT managers to manage energy usage across the enterprise network without requiring device-side agents or special configurations.

 The acquisition is expected to close in the 4QFY13.

http://tech.hexun.com/2013-05-30/154675974.html

1Q13 global server market revenue was down 7.7% YoY to US$10.9b (IDC)

 Per IDC, 1Q13 revenue from global server market was down 7.7% YoY to US$109b, making the fifth time in the previous six quarters that the server market has experienced a YoY decline. IDC noted every geographic region except Asia/Pacific experienced revenue contraction in the quarter. Server unit shipments decreased 3.9% YoY in 1Q13 to US$1.9m units.

 Volume systems logged a 3.1% revenue decline, midrange and high-end systems revenue was down 18.3% and 17.1% respectively.

 Hewlett-Packard held the top position in the global server market with a 26.9% revenue share for the quarter. IBM held the number two spot with 25.5% share. Dell maintained the third position with 18.5% share.

http://tech.hexun.com/2013-05-30/154688096.html

Kingsoft announced 1Q13 net profit of RMB211m, up 134% YoY

 1Q13 revenue was up 56% YoY to RMB457m.

 Revenue from online game was up 40% YoY to RMB267m, contributing to 58% of company’s total revenue. The monthly average paying accounts was up 33% YoY to 1.77m.

 For the Internet security products, number of PC customers reached record high of 155m, while mobile customers reached 54m.

http://www.hkexnews.hk/listedco/listconews/SEHK/2013/0524/LTN2013052432 4.pdf

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China Technology Sector 31 May 2013

Internet sector

Yahoo may acquire two mobile and telecommunications companies

 Having already acquired Hulu and Tumblr, Yahoo is now planning to acquire two other mobile and telecommunications companies, with a total consideration for the two ranging from US$150m to US$200m.

http://tech.hexun.com/2013-05-28/154581096.html

The size of the PRC big data market will grow at CAGR of 51.4% for the next five years (IDC)

 IDC forecasts the size of the PRC big data market will expand from US$77.6m in 2011 to US$617.0m in 2016F, representing a CAGR of 51.4%

http://tech.sina.com.cn/t/2013-05-29/13498391029.shtml

PRC e-commerce transaction volume exceeded RMB8,000b in 2012

 The Ministry of Commerce announced that total e-commerce transaction volume in 2012 exceeded RMB8,000b in 2012, up 31.7% YoY.

 PRC online retail transaction volume exceeded RMB1,300b in 2012, up 67.5% YoY.

http://tech.hexun.com/2013-05-29/154646015.html

TV sector

Expiry of energy saving subsidy on 31 May

 As per the official notice jointly issued by the Ministry of Finance, the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT), the one-year subsidy program for energy-efficient home appliances expired on 31 May (Friday); no extension was announced.

 The now-defunct program covered five categories of energy-saving appliances, including air conditioners, flat-panel TVs, refrigerators, washing machines and water heaters. RMB100-400 in subsidies were offered for each energy-efficient home appliance sold.

 According to the China Market Monitor (CMM), energy-saving TVs comprised an 88.5% market share of the PRC TV market by April 2013, having surged from 32.1% in June 2012 when the subsidy program was first introduced.

 CMM reported that within the one-year period, energy-saving appliances had generated RMB242.3b in sales revenue.

http://tech.sina.com.cn/e/2013-05-29/10332745794.shtml http://tech.sina.com.cn/e/2013-05-31/09218398618.shtml

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China Technology Sector 31 May 2013

Sharp issued a statement denying a joint development with LeTV to build Super TVs

 Sharp released a statement on its website clarifying that it has not, in fact, formed a joint development with LeTV to produce Super TVs.

http://tech.sina.com.cn/e/2013-05-28/02208383316.shtml

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China Technology Sector 31 May 2013

Company news

ZTE plans to invest RMB100m to establish a handset distribution channel

 ZTE will put greater emphasis on cooperating with online retailers such as Jingdong mall and Taobao, as well as regional chain stores.

 ZTE has plans to establish 1,000 handset sales counters across China in 2013F, and to boost the proportion of its handset business from 10% of total open market sales in 2012 to 40% in 2013F.

http://tech.sina.com.cn/t/2013-05-30/04478393466.shtml

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China Technology Sector 31 May 2013

China technology sector valuation matrix

CCBIS Share price* Market cap EPS growth (%) P/E (x) Company Stock code rating (HK$) (US$m) CY13F CY14F CY15F CY13F CY14F CY15F Handset brands Lenovo 992 HK Neutral 7.72 10,360 6.9 18.4 N/A 15.3 12.9 N/A HTC 2498 TT Not Rated 280.00 7,956 (29.7) 41.4 14.3 19.8 14.0 12.2 ZTE 763 HK Outperform 12.76 6,623 N/A 3.4 13.0 12.7 12.1 10.7 China Wireless 2369 HK Not Rated 3.55 958 41.7 23.9 51.9 16.3 13.1 8.7 TCL Communication 2618 HK Not Rated 4.29 626 N/A 588.6 82.2 N/A 17.8 9.8 Average 16.0 14.0 10.3

Handset components and others Mediatek 2454 TT Not Rated 361.50 16,267 44.3 25.1 1.8 19.4 15.5 15.3 AAC 2018 HK Neutral 43.25 6,827 35.8 19.9 17.8 17.7 14.4 12.3 Largan Precision 3008 TT Not Rated 982.00 4,393 35.2 12.0 NA 17.5 15.6 NA FIH 2038 HK Not Rated 3.73 3,573 N/A N/A NA N/A N/A NA Truly International 732 HK Not Rated 4.89 1,770 42.2 13.2 28.3 13.4 11.8 9.2 Unimicron Tech 3037 TT Not Rated 31.70 1,627 12.2 19.3 7.7 12.6 10.5 9.8 Sunny Optical 2382 HK Not Rated 10.88 1,398 43.2 31.5 31.8 17.3 13.2 10.0 Spreadtrum SPRD US Not Rated 19.88 963 25.9 12.2 13.1 7.9 7.0 6.2 Merry Electronics 2439 TT Not Rated 61.80 342 45.4 10.9 N/A 14.7 13.2 N/A Average 15.1 12.7 10.5

Mobile Internet Tencent 700 HK Not Rated 307.80 73,255 29.2 21.6 22.6 28.0 23.0 18.8 Kingsoft 3888 HK Not Rated 12.68 1,915 25.2 25.7 24.2 21.9 17.4 14.0 NetDragon 777 HK Not Rated 17.60 1,149 852.0 29.8 26.7 19.6 15.1 11.9 Baidu BIDU US Not Rated 97.77 34,191 3.1 21.7 27.1 19.5 16.0 12.6 Netease NTES US Not Rated 63.92 8,353 20.7 12.7 12.9 11.9 10.6 9.4 360 Qihoo QIHU US Not Rated 44.05 5,408 126.0 81.9 46.4 N/A 26.8 18.3 Ctrip.com CTRP US Not Rated 31.96 4,136 49.4 22.3 18.2 25.5 20.8 17.6 Sina SINA US Not Rated 58.21 3,879 41.0 145.3 63.1 N/A 35.0 21.5 Youku YOKU US Not Rated 20.79 3,428 (43.9) (231.0) 261.8 N/A N/A 15.0 Sohu SOHU US Not Rated 64.09 2,451 21.4 35.1 21.4 23.1 17.1 14.1 Soufun SFUN US Not Rated 27.09 2,177 26.0 22.3 N/A 11.0 9.0 N/A Average 20.1 19.1 15.3

IT Service China Com Services 552 HK Not Rated 5.17 4,603 13.9 15.2 13.6 10.5 9.1 8.0 Digital China 861 HK Outperform 10.88 1,529 12.3 13.8 N/A 7.6 6.7 N/A Asiainfo ASIA US Not Rated 11.61 845 150.2 2.8 1.0 10.3 10.0 9.9 Kingdee 268 HK Outperform 1.73 560 N/A 54.6 N/A N/A 0.1 N/A Isoftstone Holdings ISS US Not Rated 4.57 260 74.4 14.7 N/A 6.7 5.9 N/A Camelot CIS US Not Rated 1.81 84 (114.1) (23.1) N/A 13.9 18.1 N/A Average 9.8 8.3 9.0

China TV brands 1169 HK Not Rated 13.40 4,375 18.2 18.2 14.9 13.1 11.1 9.7 Hisense 600060 CH Not Rated 12.93 2,755 18.6 14.5 22.2 8.9 7.7 6.3 Skyworth 751 HK Outperform 5.28 1,903 26.4 16.9 N/A 7.3 6.3 N/A Changhong 600839 CH Not Rated 2.17 1,634 56.0 18.2 N/A N/A N/A N/A TCL Multimedia 1070 HK Neutral 6.55 1,120 21.1 2.9 N/A 9.3 9.0 N/A Konka 000016 CH Not Rated 3.46 595 83.7 14.3 N/A N/A N/A N/A Average 9.6 8.5 8.0 * Price as at close on 30 May 2013 Source: Bloomberg, CCBIS estimates

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China Technology Sector 31 May 2013

Rating definitions Outperform (O) – expected return > 10% over the next twelve months Neutral (N) – expected return between -10% and 10% over the next twelve months Underperform (U) – expected return < -10% over the next twelve months Analyst Certification: The authors of this report, hereby declare that: (i) all of the views expressed in this report accurately reflect their personal views about any and all of the subject securities or issuers; and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report; and (iii) they receive no insider information/non-public price-sensitive information in relation to the subject securities or issuers which may influence the recommendations made by them. 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