18 Dec 2020 CMB International Securities | Equity Research | Sector Initiation China 5G Technology Picking structural winners amid uncertainties OUTPERFORM (Initiation) We initiate coverage on China 5G supply chain with a positive view, as we believe China 5G Technology Sector technology localization, multi-year 5G investment cycle, policy support and robust data traffic growth will bode well for domestic leaders during 5G upcycle. In this Alex Ng report, we conducted an in-depth analysis on 5G technology trends, competitive (852) 3900 0881 landscape, near-term growth drivers and structural beneficiaries. We believe
[email protected] pessimistic sentiment on slower 5G rollout and US-China tensions in 2H20 have been reflected in stock prices. Sector valuation now come to a reasonable level Lily Yang of 33.8x FY21E P/E from 40.1x in recent peak, and we recommend to accumulate 3916 3716 sector leaders with high growth visibility, strong positioning and technology
[email protected] leadership. Our top picks are ZTE-H, Innolight, Sunway and Shengyi Tech. Global tech decoupling to accelerate domestic substitution. We believe US-China tensions will continue in medium term and Chinese companies are poised to accelerate supply chain localization in next few years. In near term, we expect China 5G network players such as Huawei and ZTE will gradually diversify their supply chains, which will boost R&D and product launches from domestic leaders, and strengthen their competitiveness in the long term. China 5G and new infrastructure initiative to fuel new chapter of growth. We expect recent US restrictions will have limited impact on China 5G rollout roadmap thanks to Huawei’s inventory build-up, accelerated semi localization and ZTE share pick-up.