中国：通讯技术 - jrj.com.cnpg.jrj.com.cn/acc/res/cn_res/indus/2015/12/8/e5146... ·...

2015 年 12 月 8 日

中国：通讯技术证券研究报告

4G 资本开支周期临近尾声的希望之“光”; 首次覆盖光迅科技，强力买入（摘要）数据时代：对速度和容量的需求增加在过去 5 年中，智能手机渗透率的上升和全球 4G 网络的启用推动着互联网数据流

量以前所未有的速度增长；思科数据显示，去年移动数据流量是 2000 年时全球互

联网总流量的近 30 倍。2014 年智能手机平均流量增长 45%，得益于网络视频流

量的增长，这应会推动 2014－19 年全球 IP 流量年均复合增速达到 23%（思

科）。网络速度将持续提高以支撑流量增长，到 2019 年移动/固网宽带速度将增

长 1 倍多以满足视频用户更快/更流畅的观看要求。对网络基础设施的需求也在上

升以支持数据大幅增长和内容的远程存放。为应对全球数据需求的快速增长，电

信和数据通讯企业需要通讯技术设备和元器件供应商的帮助。

中国电信资本开支下降…数据通讯企业将迎来增长电信运营商需求曾经是通讯技术行业的命脉，但我们认为随着 4G资本支出周期接

近尾声，2014年电信资本开支已经触顶，我们预计 2015年全球电信运营商资本支

出将下降 7%；中国的状况更为有利，无线资本开支将于 2015年触顶，固网资本开

支受到“宽带中国”政策的支持而将保持相对稳定。另一方面，电信行业出现了一

批新的客户－数据中心和云服务供应商－这些企业在建立自有基础设施以容纳数

据和流量的同时将帮助填补需求缺口。IDC预计 2014－18年中国公共云市场的年

均复合增速将为 30%，高于我们的全球云供应商资本开支预测。我们预计到 2018年，全球数据通讯设备资本支出在总通讯技术资本开支中的占比将从 2014年的

20%升至 33%。

较之设备商更青睐元器件供应商：强力买入光迅科技，潜在上行空间 30%上游光学元器件生产企业所处地位佳，因其更能受益于云市场需求的上升，同时

受电信资本开支削减的冲击较小。光迅科技：首次覆盖评为买入（加入强力买入名

单）：我们预计公司市场份额将扩张，得益于光学元器件市场的加速增长，同时公

司产品结构向高速产品调整（10G/40G）也将推动利润率改善。该股当前估值并未

充分反映其历史上较高的每股盈利增速。烽火通信：首次覆盖评为中性：尽管我们

预计 2016年运营商/云服务供应商强劲的光纤投资将会推动公司收入稳步增长，但

该股上行空间相对有限。中兴通讯：中性：该股为中国第二大通讯设备企业，其估

值体现了收入增长的放缓（主要是由于电信运营商资本支出的下降）。我们调整了

该股盈利预测，上调了目标价格，同时侯雪婷接替胡玲玲承担该股的研究。

*全文翻译随后提供

高华覆盖的通讯技术股估值比较表

股价截至 12 月 4 日收盘价。注：我们对覆盖范围内股票应用了新

的基于市盈率的估值框架。*强力买入名单。

资料来源：Datastream、彭博、高华证券研究

2016 年全球数据通讯设备行业增长将加速…同时电信设备

行业增长将放缓

资料来源：Gartner、公司数据、高盛全球投资研究、高华证券研究

侯雪婷 (分析师) 执业证书编号: S1420515060001 +86(21)2401-8694 [email protected] 北京高华证券有限责任公司

北京高华证券有限责任公司及其关联机构与其研究报告所分析的企业存在业务关系，并且继续寻求发展这些关系。因此，投资者应当考虑到本公司可能存在可能影响本报告客观性的利益冲突，不应视本报告为作出投资决策的唯一因素。有关分析师的申明和其他重要信息，见信息披露附录，或请与您的投资代表联系。

吕东风, PhD (研究助理) +86(10)6627-3123 [email protected] 北京高华证券有限责任公司

北京高华证券有限责任公司投资研究

Company Ratings Market 12m

Target Potential

Market cap

Price Price +/-Side US$ mnAccelink (Rmb) Buy* 58.7 76.0 30% 1,925

Fiberhome (Rmb) Neutral 26.8 30.0 12% 4,392

ZTE (Rmb) Neutral 17.7 16.0 -10% 11,433

ZTE (HK$) Neutral 17.3 19.0 10% 9,187

Company P/EEV/

EBITDA2016E 2016E

Accelink (Rmb) 27.9% 43.0% 52.8% 40.3x 25.9x

Fiberhome (Rmb) 20.5% 31.8% 32.0% 29.7x 18.6x

ZTE (Rmb) -0.5% 6.4% 9.8% 17.8x 10.3x

ZTE (HK$) -0.5% 6.4% 9.8% 14.3x 8.6x

CompanyEV/

SalesFCF yield

Div yield

Net debt /EBITDA

CROCI

2016E 2016E 2016E 2016E 2016EAccelink (Rmb) 3.1x 0.4% 0.9% -1.2 16.1%

Fiberhome (Rmb) 1.6x 2.4% 1.5% -2.8 21.2%

ZTE (Rmb) 0.9x 5.2% 1.5% 1.7 12.8%

ZTE (HK$) 0.8x 6.4% 1.8% 1.7 12.8%

Revenue/EBITDA/EPS

2015E-2017E CAGR

0% ‐1% 0%2%

5%

11%

25%

20%

16%

13%

‐5%

0%

5%

10%

15%

20%

25%

30%

‐

50

100

150

200

250

2014 2015E 2016E 2017E 2018E 2019E

Telecom equipment Datacom equipment

Telecom yoy % Datacom yoy %(US$ bn)

2015 年 12 月 8 日中国：通讯技术

全球投资研究 2

Table of contents

PM Summary: On cloud 9: Data revolution a boon for CommTech 3

Data, Data, Data – the powerful growth driver 4

Sector driver I: Higher China telco capex forecast in 2016E 11

Sector driver II: China’s data center and cloud service providers are charging up for growth 19

China CommTech: From zero to hero; three decades of development 25

Case study: The making of Huawei – “surrounding the cities from the countryside” strategy 29

Valuation: introducing Matrix valuation framework 37

Accelink (002281.SZ): Market share/margin gain; initiate at Buy (CL) 40

ZTE (0763.HK/000063.SZ): Slowing growth on telco capex; Neutral 51

Fiberhome (600498.SS): Fiber inv. to drive growth; initiate at Neutral 61

Appendix I: Glossary 67

Appendix II: Matrix valuation framework 69

Disclosure Appendix 37

Prices in this report are based on December 4, 2015 prices, unless otherwise stated.

Exhibit 1: GS/GH CommTech Valuation Comps

*denotes the stock on our Conviction List

NC = Not Covered

Source: Datastream, Bloomberg, Gao Hua Securities Research, Goldman Sachs Global Investment Research.

GS/GH Optical Component Comp Sheet

Company Ticker Rating Market 12m

Target Potential

Market cap

EV/ EBITDA

EV/ Sales

FCF yield

Div yield

CROCI

Price Price +/-Side US$ mn 2016E 2016E 2016E 2016E 2016E 2016EAccelink (Rmb) 002281.SZ Buy* 58.7 76.0 30% 1,925 27.9% 43.0% 52.8% 40.3 25.9 3.1 0.4% 0.9% 16.1%Finisar (US$) FNSR Neutral 12.1 14.0 16% 1,285 7.5% 15.8% 20.2% 10.7 4.2 0.7 3.3% 0.0% 11.3%

Lumentum (US$) LITE Neutral 19.8 20.0 1% 1,168 6.2% 19.4% 26.9% 16.0 7.8 1.1 3.2% 0.0% 13.5%

Avago (US$) AVGO Buy 144.8 171.0 18% 39,959 7.7% 1.3% 4.6% 15.4 12.4 5.3 6.4% 1.2% 29.9%

Sumitomo (JPY) 5802.T Neutral 1,758.0 1,800.0 2% 11,367 4.7% 7.9% -6.0% 14.5 6.1 0.6 2.9% 2.0% 6.4%

Oclaro (US$) OCLR US Equit NC 3.6 NA NM 395 8.6% NA NA NM 11.3 0.9 NA NA NM

NeoPhotonics (US$) PTN US Equit NC 9.8 NA NM 398 NA NA NA 18.1 NA 0.9 NA NA 10.8%

II-VI (US$) IIVI US Equity NC 18.8 NA NM 1,146 NA NA NA 16.3 7.2 1.4 9.2% NA 14.8%

Applied Optoelectronics (US$)AAOI US Equit NC 17.8 NA NM 300 18.6% NA 17.4% 12.3 NA 1.3 NA NA 21.7%

IPG Photonics (US$) PGP US Equit NC 92.1 NA NM 4,859 NA NA NA 18.2 9.8 4.2 7.5% 0.0% 42.9%

Average 11.6% 17.5% 19.3% 18.0 10.6 2.0 4.7% 0.7% 18.6%Median 7.7% 15.8% 18.8% 16.0 8.8 1.2 3.3% 0.4% 14.8%STD 8.5% 15.9% 20.2% 8.7 6.8 1.6 3.1% 0.8% 11.4%

GS/GH Communications Technology Equipment Comp Sheet


Target Potential

Market cap

EV/ EBITDA

EV/ Sales

FCF yield

Div yield

CROCI

Price Price +/-Side US$ mn 2016E 2016E 2016E 2016E 2016E 2016EZTE (HK$) 0763.HK Neutral 17.3 19.0 10% 9,187 -0.5% 6.4% 9.8% 14.3 8.6 0.8 6.4% 1.8% 12.8%ZTE (Rmb) 000063.SZ Neutral 17.7 16.0 -10% 11,433 -0.5% 6.4% 9.8% 17.8 10.3 0.9 5.2% 1.5% 12.8%Fiberhome (Rmb) 600498.SS Neutral 26.8 30.0 12% 4,392 20.5% 31.8% 32.0% 29.7 18.6 1.6 2.4% 1.5% 21.2%Alcatel-Lucent (EUR) ALUA.PA Buy 3.7 4.8 29% 11,477 4.7% 16.1% 40.6% 13.1 5.0 0.6 8.3% 0.0% 8.9%

Ericsson (SKR) ERICb.ST Neutral 82.9 97.0 17% 29,577 5.4% 14.9% 30.5% 12.9 5.9 0.9 8.3% 4.8% 10.4%

Nokia (EUR) NOKIA.HE Buy* 6.9 8.7 27% 29,702 -1.6% 6.3% 9.2% 23.1 11.2 1.8 5.9% 2.0% 10.7%

Cisco (US$) CSCO Buy* 27.0 35.0 30% 136,800 3.4% 3.7% 5.7% 11.5 6.1 1.9 8.1% 3.3% 29.0%

Juniper (US$) JNPR Buy 29.3 34.0 16% 11,309 5.6% 7.4% 12.0% 13.1 6.9 1.9 8.4% 1.6% 18.7%

Adtran (US$) ADTN Neutral 16.3 15.0 -8% 805 4.4% 53.5% 46.3% 18.9 10.7 0.9 4.0% 2.2% 10.7%

Arris (US$) ARRS Buy 32.0 39.0 22% 4,692 31.1% 43.2% 36.5% 9.9 5.5 0.8 10.7% 0.0% 22.8%

Ciena (US$) CIEN Buy 24.5 29.0 19% 3,297 NM NM NM 13.4 8.5 1.2 9.7% 0.0% 18.4%

Infinera (US$) INFN Sell 21.8 20.0 -8% 3,044 21.0% 25.1% 21.7% 22.6 14.2 2.4 3.7% 0.0% 21.6%


2015E-2017E CAGR

Revenue/EBITDA/EPS P/E

P/E

2015E-2017E CAGR

Revenue/EBITDA/EPS



PM Summary: On cloud 9: Data revolution a boon for CommTech

We expect the world’s love of data to continue over the next five years as the advancement

in network and handset technologies continues to change the way people consume data.

Online video streaming is cementing its position as the most prevalent form of data consumption and will underpin strong global IP traffic growth of 23% CAGR 2014-2019

(Cisco).

With robust data traffic growth comes the need for increasingly faster network infrastructure and more capacity to store and enable data consumption – with data centers and cloud services required to do the heavy computational lifting. The CommTech equipment industry will support this need, with the upstream optical component industry particularly well positioned to benefit.

Telco capex was once the lifeblood of the CommTech equipment industry;

however, as we are now half way into the 4G cycle, telecom capex spending has peaked. On the other hand, the emergence of a new set of customers – data center operators and cloud

service providers – will help plug demand gaps, as they continue to build their own networks of data centers alongside the traditional telecom operators.

Sector driver I: Higher China Telco capex forecast in 2016E: While slowing telco capex is

negative for the industry, Chinese telcos’ demand into 2016E is not as weak as we previously anticipated and we raise our wireless/wireline capex forecast by 3%/4%. In the medium-term, we

expect demand growth from the “Broadband China” plan, which targets a doubling of fixed broadband subscribers by 2020E. This is incrementally positive for Accelink and Fiberhome, which have high revenue exposure to the wireline side.

Sector driver II: China’s data centers and cloud service providers are charging up: IDC

forecasts China’s public cloud market to grow at a CAGR of 30% from 2014 to 2018, driven by strong internet traffic growth, which Cisco forecasts to be 32% yoy in 2015 and 25% yoy in 2016.

Our analysts expect the largest public cloud service provider in China– Aliyun, as well as the global market leader– AWS to spend a significant amount of capex in the coming years, with 30% and 10% capex CAGR over CY2015E-CY2017E respectively.

Among our coverage, we believe optical component maker Accelink is best positioned to benefit from strong Datacom sector growth, with leverage to BAT’s (Baidu/Alibaba/Tencent) large-scale deployment of optical-module solution in their data centers since 2014. Ovum expects the

Datacom optical component segment to grow at 16% CAGR over 2014 to 2019.

We undertake two case studies to augment our industry analysis:

1. Huawei Technologies (unlisted): CommTech: We look at the rise of the world’s

largest communications equipment and service provider– which holds over 40% market share in the China telecom equipment space, making it a key client/competitor for the component/equipment makers.

2. Aliyun (Alibaba’s unlisted subsidiary): Cloud services: As the market leader in

public cloud computing in China, we believe the company provides a good indication of where the industry is heading.



Stock Picks: Accelink CL-Buy top pick

Initiate coverage on Accelink at Buy (on CL); margin upside not factored in Accelink is China’s leading optical component provider with highly integrated upsteam/downstream supply chain capabilities and a comprehensive product suite for the Telecom and Datacom equipment manufacturers. In 2014, Accelink had c.20% China market share and close to 5% global market share.

Among our coverage, we believe Accelink is best positioned to benefit from the Telecom core

network upgrade, growing fiber broadband penetration, and strong growth in the Datacom sector with leverage to BAT’s (Baidu/Alibaba/Tencent) large-scale deployment of optical-module solutions in their data centers starting 2014.

Accelink is our top pick in the sector and our 12-month target price of Rmb76.00 implies 30% potential upside. We believe the current market price does not adequately reflect Accelink’s stronger-than-peers revenue growth as well as margin improvement following a mix shift to more

high-speed products, leading to historical high EPS growth in 2016E.

Reiterate Neutral on ZTE A/H, transfer coverage to Tina Hou ZTE is the second largest communications technology equipment company in China with 15%

market share, behind Huawei (42%). We forecast 2015E revenue growth of 15% yoy, mainly driven by total China telco capex growth of 9% yoy. However, we expect growth to slow down to 3%/-4% yoy in 2016E/17E as our China telco analyst, Donald Lu expects China telco capex to peak in 2015 and decline by 7%/17% in the next two years (without factoring in China Tower).

The business is relatively leveraged (62% of revenues) to the decelerating telco capex cycle and we believe the current market price fairly reflects ZTE’s fundamentals, with A/H shares trading

close to their 10 year average P/E; retain Neutral on both A share and H share with 12-month TPs of Rmb16.00 and HK$19.00 respectively. With this report, we transfer coverage to Tina Hou from Lingling Hu.

Initiate coverage on Fiberhome at Neutral Fiberhome is the third largest optical equipment vendor in China with about 4% market share. The company supplies optical communications equipment to both telco operators (Telecom) and data center operators (Datacom), it also manufactures optical fiber and cables for use in optical networks.

We expect Fiberhome’s revenue growth to accelerate to 26% yoy in 2016E from 18% yoy in

2015E as a result of strong fiber investment at both telcos and cloud service providers as they move to achieve higher speeds and expand network capacity to support the internet consumption growth.

Our 12-month target price of Rmb30.00 offers 12% potential upside; however we prefer Accelink given higher potential upside and stronger market position in China and globally.

Data, Data, Data – the powerful growth driver

A data obsessed world has driven robust data traffic growth… Over the past five years, the proliferation of smartphones together with the commercial launch of 4G services on a global basis have propelled unprecedented growth in internet data traffic growth.



Worldwide smartphone penetration (as% of total handsets) rose from 1% in 2003 to 66% in 2014, and our GS global handset team forecasts penetration to rise further to 89% in 2017E. As of July 2015, among the 638 operators in 181 countries which are committed to deploying LTE, 422 LTE

networks have been commercially launched in 143 countries with 106 launched in the past year, and by 1Q15 there were 635mn LTE subscriptions worldwide, according to GSA (Global mobile Suppliers Association).

Exhibit 2: Global smartphone penetration is forecasted to rise from 66% in 2014 to 89% in 2017E (GSe)

Exhibit 3: The launch of 4G networks by operators worldwide has triggered LTE handset adoption

Source: Gartner, Global Mobile, World Bank, and Goldman Sachs Global Investment Research.

Source: Gartner, Global Mobile, World Bank, and Goldman Sachs Global Investment Research.

… and we expect it to continue for the next five years… We see this trend continuing over the next five years as the advancement in network and handset technologies are changing people’s behavior in terms of how they consume data. Online video streaming has become the most prevalent form of data consumption with both fixed and mobile broadband. The superior speed and network quality offered by 4G has enabled consumers to utilize fragmented time slots, such as during their commute and while they are waiting in line etc.,

to play with their smartphones. Cisco forecasts online video traffic to grow at a CAGR of 33% over 2014-2019, driving global IP traffic to grow at a CAGR of 23% over the same period of time. With 4G launched in more and more markets around the world, mobile network connection speed is expected to improve from 1.7Mbps in 2014 to 4.0Mbps in 2019 to support video traffic growth. As more and more fixed networks are being upgrade from copper to fiber, global average fixed broadband speed is also forecasted to more than double from 20Mbps in 2014 to 42.5Mbps in

2019 (Cisco).

1% 3%7% 8% 11% 11% 14%

19%

27%

39%

54%

66%

75%82%

89%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% Global smartphone penetration

0 689

256

467

730

904

1,057

0

200

400

600

800

1,000

1,200

2010 2011 2012 2013 2014 2015E 2016E 2017E

LTE handsets (in millions)



Exhibit 4: Cisco VNI forecasts global IP traffic CAGR of 23% (2014-19)…

Exhibit 5: … Driven by internet video traffic CAGR of 33% (2014-19)

Source: Cisco VNI.

Source: Cisco VNI.

Exhibit 6: Global average fixed/mobile broadband speed is expected to grow 16%/19% (CAGR 2014-2019)

Source: Cisco VNI.

60 72

88 109

136

168

21%

22%

23%

24%24%

20%

21%

22%

23%

24%

25%

‐

20

40

60

80

100

120

140

160

180

2014 2015 2016 2017 2018 2019

Global IP Traffic Yoy growth (RHS)

(Exabytes per month) (Yoy %)

22 27 36

49

66

89

36%38%

41%

45%

49%

53%

30%

35%

40%

45%

50%

55%

‐

10

20

30

40

50

60

70

80

90

100

2014 2015 2016 2017 2018 2019

Internet video traffic As % of total IP traffic (RHS)

(Exabytes per month)

Region 2014 2015 2016 2017 2018 2019 CAGR

Asia Pacific 23.2 28.1 31.1 36.3 41.5 48.9 16%

Latin America 7.2 7.6 8.5 10.5 13.1 16.9 19%

North America 21.8 25.4 28.7 33.7 38.7 43.7 15%

Western Europe 21.8 22.8 26.8 32.5 39.7 49.1 18%

Central and Eastern Europe 22.2 28.3 33.4 37.7 41.8 45.3 15%

Middle East and Africa 6.1 7.0 8.5 11.1 13.0 14.9 20%

Global 20.3 24.7 29.2 33.6 38.1 42.5 16%

Yoy growth 22% 18% 15% 13% 12%

Region 2014 2015 2016 2017 2018 2019 CAGR

Asia Pacific 2.03 2.23 2.44 2.73 3.05 3.51 12%

Latin America 1.38 1.56 1.78 2.08 2.46 2.95 16%

North America 2.82 3.05 3.54 4.30 5.20 6.40 18%

Western Europe 2.04 2.45 2.92 3.41 3.91 4.69 18%

Central and Eastern Europe 1.62 1.94 2.35 2.76 3.17 3.67 18%

Middle East and Africa 0.58 0.70 0.74 1.10 1.58 2.10 29%

Global 1.68 1.75 2.02 2.63 3.25 3.96 19%

Yoy growth 4% 15% 30% 24% 22%

Smartphone 6.10 6.90 7.69 8.47 8.83 10.40 11%

Tablet 8.70 10.20 10.91 12.12 12.40 13.05 8%

Fixed Broadband Speeds (in Mbps)

Mobile Network Connection Speeds (in Mbps)



… underpinning CommTech growth, optical component makers key beneficiaries… We believe the strong data traffic growth over the next five years creates demand for increasingly faster network infrastructure, and hence should drive growth in the CommTech equipment industry, especially the upstream optical component industry given they are more leveraged to

the rising cloud market demand, and less exposed to the telco capex contraction.

Optical component suppliers’ (e.g. Accelink, Finisar, Lumentum etc.) revenue is primarily driven by procurement from CommTech equipment vendors such as Huawei, ZTE, Ericsson, Alcatel-Lucent etc. or more specialized fiber optics equipment vendors such as Fiberhome, Ciena, and

Infinera etc. The demand for CommTech equipment such as PTN/OTN, Router/switch, PON, base station, server, and storage are in turn highly correlated with the investment spending at

both telecom operators as well as data center/cloud service users/providers.

Now half way into the 4G cycle, our global telco team believes telecom capex spending has peaked in 2014, and forecasts global telco capex to decline 7% yoy in 2015E, flat yoy excluding FX impact. On the other hand, there has been a new set of customers rising for the industry – cloud service providers – who are building their own networks of data centers alongside those of traditional telecom operators. GS US CommTech team forecasts cloud provider capex to grow

11%/25% yoy in 2015/16.

Overall, the expansion of core network capacity/speed and the strong demand from cloud service providers should drive the optical component industry growth, which Ovum expects a CAGR of 12% from 2014-2019.

2015年

12月

8日

中

国：通讯技术

全球

投资研究

8

Exhibit 7: Telecom and Datacom industry technology structure map

Note: Please see Appendix for glossary

Source: Gao Hua Securities Research, Goldman Sachs Global Investment Research.

Telecom service operators and data center providers (including China Mobile, AT&T, Aliyun, AWS etc.)

Telecom and datacom equipment vendors (including Huawei, Ericsson, Alcatel‐Lucent, Nokia, ZTE, Fiberhome etc.)

Optical component suppliers (including Accelink, Finisar, Lumentum etc.)

Transport

network

Data center

interconnect

Data

center

Wireline

access

Wireless

access

xDSL PON HFCBase

stationRouter PTN OTN Server Storage Networking

OLT ODNONU/

ONTBBU RRU Attenna SDH/SONET WDM Dark fiber Switch Adapter Aggregator

Transceiver Amplifier Laser ROADM Chip

Router/ Switch

Access

network

Datacom

Network

Telecom

network

股票报告网整理http://www.nxny.com



Exhibit 8: Telecom and Datacom industry value chain

Source: Ovum, Gartner, Pyramid Research, Gao Hua Securities Research, Goldman Sachs Global Investment Research.

Exhibit 9: The US$170bn CommTech equipment industry will grow at a CAGR of 5.2% from 2014-2019

Exhibit 10: We forecast Datacom will account for 34% of the total CommTech equipment industry in 2019

Source: Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.


Telecom service operators

TAM: US$1800bn (2015)

CommTech equipment vendors Growth: 3.3% CAGR (2015‐19)

Optical component suppliers

TAM: US$170bn (2014) Market share (2014)

TAM: US$7bn (2014) Growth: 5.2% CAGR (2014‐19) AT&T: 7.5%

Growth: 12% CAGR (2014‐19) Verizon: 7.5%

Market share (2014) China Mobile: 6.0%

Market share (2014) Ericsson: 17.7%

Finisar: 16.7% Huawei: 16.1%

Lumentum: 8.4% Alcatel‐Lucent: 8.7% Cloud service providers

Avago: 7.3% Nokia Networks: 8.2%

Sumitomo: 6.0% Cisco: 5.6% TAM: US$24bn (2015)

Accelink: 4.7% ZTE: 5.1% Growth: 30% CAGR (2013‐18)

Fiberhome: 1.0%

Market share (2014)

AWS: 26%

Microsoft: 5%

Salesforce: 5%

0% ‐1% 0%2%

5%

11%

25%

20%

16%

13%

‐5%

0%

5%

10%

15%

20%

25%

30%

‐

50

100

150

200

250

2014 2015E 2016E 2017E 2018E 2019E


Telecom yoy % Datacom yoy %(US$ bn)

80% 78% 74% 70% 67% 66%

20% 22% 26% 30% 33% 34%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015E 2016E 2017E 2018E 2019E




Exhibit 11: Ovum forecasts global optical components industry revenue CAGR of 12% (2014-19)…

Exhibit 12: … driven by Datacom (16% CAGR) and WAN (11% CAGR), while Access declines (-2% CAGR)

Source: Ovum.

Source: Ovum.

Exhibit 13: Global carrier capex yoy change for 2015/2016 expected to be -7%/-8% Bottom-up global carrier capex based on the top 40 carriers covered by GS Research*

*Note: We use FactSet consensus for Canadian carriers: BCE, Telus, Rogers, and Shaw Communications

Source: Company data, FactSet, Goldman Sachs Global Investment Research.

‐

2,000

4,000

6,000

8,000

10,000

12,000

2014 2015 2016 2017 2018 2019

Optical component market size(US$ mn)

0%

‐2%‐3%

9%

4%

1%

2%

‐7%‐8%

‐10%

‐8%

‐6%

‐4%

‐2%

0%

2%

4%

6%

8%

10%

12%

0

50

100

150

200

250

300

2009 2010 2011 2012 2013 2014 2015E 2016E

YoY gro

wth

US$ billions

Total capex Total capex ex‐FX % Capex Change ex‐FX % Capex Change



Sector driver I: Higher China telco capex forecast in 2016E

Our China telco analyst Donald Lu has revised his capex forecasts for China Mobile, China Unicom, and China Telecom. (Please see Exhibit 14)

Overall, Donald cut 2015E capex forecast for the industry by 4% (6% mobile, 1% fixed), raised

2016E capex by 2% (3% mobile, 4% fixed), and cut 2017E capex by 1% (mobile cut by 2%, fixed raised by 4%).

China Mobile: Donald raised China Mobile group capex by 3% in 2016E and cut 2017E capex

by 2%. Mobile capex was raised by 10% in 2016E on 4G coverage optimization and capacity expansion, and lowered by 3% in 2017E. Fixed-line capex was raised by 5% in both 2016E and 2017E on higher transmission capex to accommodate strong data consumption growth.

China Unicom: Donald cut 2015E total capex by 13%, raised 2016E by 1%, and cut 2017E by

4%. Mobile capex was cut by 16%/7% in 2015E/17E, mainly on lower 2G and 3G spending.

Fixed-line capex was lowered by 5% in 2015E, but raised by 3%/5% in 2016E/2017E to account for higher investment in both transport and access network.

China Telecom: Donald raised total capex by 2%/4% in 2016E/2017E. Mobile capex was raised

by 2%/4% in 2016E/2017E with higher 4G spending. Fixed-line capex was also raised by 3%/4% in 2016E/2017E on copper-to-fiber upgrade as well as core network capacity expansion.

Donald Lu expects China telecom service providers’ total capex to peak in 2015E, reaching

c.RMB430bn (US$67bn) with 9% yoy growth and accounting for 38% of total service revenue. Wireless capex is expected to decline 8% yoy in 2016E post China Mobile’s peak 4G network rollout, a reverse from growing 16% yoy in 2015E. On the other hand, wireline capex is expected to decline 2% yoy in 2016E, an improvement from the 8% yoy decline in 2015E mainly driven by 5% yoy growth in China Mobile’s transmission capex.

While the slowing capex spend is negative for industry growth for telecom equipment vendors and

optical component suppliers, the demand is not as weak as we previously anticipated at the Chinese telcos. Specifically, we raise our forecast for wireline capex by 4% in 2016E and 2017E, equivalent to RMB5.4bn and RMB5.8bn. We believe this is incrementally positive for vendors with high revenue exposure to the wireline side, especially Accelink and Fiberhome.



Exhibit 14: Change in our China telco capex forecast

Source: Gao Hua Securities Research.

China Mobile (RMB mn) 2015E 2016E 2017E 2015E 2016E 2017E

Total capex (Group) ‐ 6,000 (3,577) 0% 3% ‐2%

Railcom capex ‐ (0) ‐ 0% 0% 0%

Total capex (listco) ‐ 6,000 (3,577) 0% 3% ‐2%

Mobile capex ‐ 5,700 (1,450) 0% 10% ‐3%

Fixed‐line capex ‐ 3,295 2,966 0% 5% 5%

2G/core/(other) capex ‐ (300) (150) 0% ‐6% ‐4%

3G capex ‐ ‐ ‐ 0% 0% 0%

LTE capex ‐ 6,000 (1,300) 0% 11% ‐3%

Listco Transmission capex ‐ 3,295 2,966 0% 5% 5%

Other listco capex (building, infra, IT etc) ‐ (2,995) (5,092) 0% ‐6% ‐11%

China Unicom (RMB mn) 2015E 2016E 2017E 2015E 2016E 2017E

Total capex (17,096) 1,093 (2,967) ‐13% 1% ‐4%

Mobile capex (15,516) 206 (4,265) ‐16% 0% ‐7%

GSM 2G capex (1,066) (639) (384) ‐51% ‐51% ‐51%

WCDMA capex (13,934) (4,180) (2,090) ‐78% ‐78% ‐78%

LTE capex ‐ 5,000 (2,000) 0% 8% ‐4%

Fixed‐line capex (1,580) 887 1,298 ‐5% 3% 5%

China Telecom (RMB mn) 2015E 2016E 2017E 2015E 2016E 2017E

Total capex ‐ 2,200 3,590 0% 2% 4%

Mobile capex ‐ 1,000 2,090 0% 2% 4%

2G and EVDO capex ‐ ‐ 90 0% 0% 6%

LTE capex ‐ 1,000 2,000 0% 2% 4%

Fixed‐line capex ‐ 1,200 1,500 0% 3% 4%

Industry (RMB mn) 2015E 2016E 2017E 2015E 2016E 2017E

Mobile capex (RMB mn) (15,516) 6,906 (3,625) ‐6% 3% ‐2%

Fixed‐line capex (RMB mn) (1,580) 5,382 5,764 ‐1% 4% 4%

Industry total capex (RMB mn) (17,096) 9,292 (2,953) ‐4% 2% ‐1%



Exhibit 15: China telco capex expected to peak in 2015E (9% yoy), accounting for 38% of service revenue

Exhibit 16: Wireless capex declines in 2016E whereas wireline capex trend improves

Source: Company data, Gao Hua Securities Research.


Wireless capex – mobile access network (base stations) Wireless capex is a function of incremental base stations built by the operators. By the end of 2014, China Mobile – who has a leg up on the TD-LTE technology – already built 700k 4G base stations; whereas China Telecom and China Unicom – whose 3G technologies are FDD based, and didn’t get FDD-LTE license until end of February 2015 – only deployed 180k and 100k 4G

base stations in 2014 respectively.

For China Mobile (CM), 2014 saw the highest number of incremental 4G base stations, 520k; In 2015, China Mobile targets to build 380k 4G base stations, and we forecast 220k/160k in 2016E/17E. As a result, wireless capex at China Mobile will start to decline after the peak base station construction/upgrade period in 2014. We forecast China Mobile wireless capex to decline by 31%/17%/29% yoy in 2015E/16E/17E.

For China Telecom (CT)/China Unicom (CU), wireless capex will continue to grow in 2015E (113%/67% yoy) as 350k/400k 4G base stations are planned to be added; Capex will then start to decline in 2016E by 3%/5% and in 2017E by 15%/30% for CT/CU respectively, we estimate. CT started to lease towers from China Tower in 2Q15. Among the 60K leased towers, 70% are shared with other operators. During its 1H15 result analyst meeting, CT said it saved RMB6bn 4G capex through tower sharing and central procurement, but maintained its 2015 capex guidance of

RMB107.8bn and increased its year-end 4G BTS target from 460K to 510K. CT’s 4G data usage increased to 700MB/mo from 600MB/mo at end 2014, and 3G/4G traffic grew 77% yoy.

Among the stocks under our coverage, ZTE is the most exposed to telco wireless capex

demand, while Accelink and Fiberhome have less exposure to the wireless side.

34%33%

36%

33%35%

38%

33%

26%

15%

20%

25%

30%

35%

40%

‐

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2010 2011 2012 2013 2014 2015E 2016E 2017E

Industry total capex (RMB mn) Capex/service revenue %

4%

16% 16%

‐8%

‐2%

3%

‐8%

‐2%

‐8%

‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

‐

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2013 2014 2015E 2016E 2017E

Mobile capex (RMB mn) Fixed‐line capex (RMB mn)Mobile yoy % Fixed‐line yoy %

(RMB mn)(RMB mn)

25%



Exhibit 17: China Mobile is the leader in 4G with 51% of total 4G base stations by the end of 2015E

Exhibit 18: China Telecom and China Unicom are playing catch up in 2015E and beyond



Exhibit 19: CM’s total capex peaked in 2014, while CT and CU should peak in 2015E

Exhibit 20: Wireless capex growth/decline is a function of incremental base stations built



Wireline capex – transport network and broadband access network We forecast total wireline capex for the China telcos to decline 8% yoy in 2015E, and ease to a more modest decline of 2% yoy in 2016E.

For China Mobile (listco), this mainly represents the backhaul transmission capex for its mobile

network. We expect transmission capex to decline 9% yoy in 2015E before returning to 5% yoy growth in 2016E on capacity expansion to accommodate for the strong data growth.

For China Unicom and China Telecom whose broadband business is included in the listed entities, wireline capex contains spending on both backhaul transmission and broadband access network. We forecast CU’s wireline capex to decline 11%/7%/9% yoy in 2015E/16E/17E. For CT, we forecast its wireline capex to decline by 5%/7%/4% in 2015E/16E/17E. CT plans to expand its

FTTH coverage to 180mn households by end 2015.

China Mobile

1,080,000

51%

China

Telecom

530,000

25%

China

Unicom

500,000

24%

4G base stations (2015E)

0

100,000

200,000

300,000

400,000

500,000

600,000

2012 2013 2014 2015E 2016E 2017E

Number of new 4G base stations

China Mobile China Telecom China Unicom

‐

50,000

100,000

150,000

200,000

250,000

2010 2011 2012 2013 2014 2015E 2016E 2017E

China telcos capex forecast

China Mobile China Unicom China Telecom(RMB mn)

‐40%

‐20%

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015E 2016E 2017E

Wireless capex yoy growth %

China Mobile China Unicom China Telecom



Exhibit 21: We forecast total wireline capex for China telcos to decline -8% yoy in 2015E, and ease to -2% yoy in 2016E

Exhibit 22: China Telecom is the largest fixed broadband service provider in China with about 112k subs



Exhibit 23: CM (listco)’s wireline capex mainly represents backhaul transmission, while CT/CU contain network access as well

Exhibit 24: Wireline capex for China Mobile is expected to grow 5% yoy in 2016E



All three stocks under our coverage are exposed to the wireline capex demand, with Accelink and Fiberhome more focused on the optical side.

“Broadband China” to drive and monitor fixed network coverage and penetration In Aug 2013, the State Council issued its “Broadband China” strategy and implementation plan, laying out a set of targets to develop China’s wireline and wireless broadband infrastructure construction and subscriber penetration. The plan included a specific set of short-term targets to

be achieved by 2015 as well as a long-term target by 2020. We believe this will encourage the network and service providers to have a clear roadmap to deploy/upgrade their networks and to acquire new subscribers out to 2020E. We view the “Broadband China” plan as an industry growth driver in the medium-term, which should support demand for the CommTech equipment vendors and optical component suppliers as more and more households get connected.

From 2015 to 2020, “Broadband China” is targeting an increase in nationwide fixed broadband

subscribers by 130mn, or 26mn net adds per year, which should bring subscriber numbers to

‐2%

3%

‐8%

‐2%

‐8%

‐10%

‐8%

‐6%

‐4%

‐2%

0%

2%

4%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2013 2014 2015E 2016E 2017E

Total wireline capex (RMB mn) Yoy growth %

0

100

200

300

400

500

600

700

800

900

0

20,000

40,000

60,000

80,000

100,000

120,000

Ju

n-1

3

Au

g-1

3

Oct-

13

De

c-1

3

Fe

b-1

4

Ap

r-1

4

Ju

n-1

4

Au

g-1

4

Oct-

14

De

c-1

4

Fe

b-1

5

Ap

r-1

5

Ju

n-1

5

Au

g-1

5

Oct-

15

CT CU CT CUBroadband subs Net adds

‐40%

‐20%

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015E 2016E 2017E

Wireline capex yoy growth %

China Mobile (transmission) China Unicom China Telecom

‐

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2012 2013 2014 2015E 2016E 2017E

Wireline capex forecast (RMB mn)

China Mobile (transmission) China Unicom China Telecom



400mn and household penetration to 70% in 2020. Over the past five years, annual fixed broadband net adds was 20.5mn, according to MIIT data. The plan sets a nationwide 3G/LTE subscriber target at 1.2bn by 2020 for 85% penetration, or 150mn net adds per year. Historically,

annual mobile subscriber net adds was c.120mn on average (2010-2014). Therefore, we expect accelerated subscriber acquisitions for both fixed broadband as well as 3G/LTE going forward. In terms of fixed broadband access speed, the plan targets 50Mbps for urban areas (with selective households reaching 1Gbps) and 12Mbps for rural areas. FTTH home pass should reach 200mn by 2015 and 300mn by 2020.

In October 2015, Chinese Premier Li Keqiang chaired a State Council executive meeting to

improve the universal service mechanism of fixed broadband connections in rural and remote areas. The meeting decided to increase the central government investment, strengthen local policy guidance and financial support to encourage basic telecommunications, broadcasting companies, and private capital to participate in the construction and operation/maintenance of rural broadband networks through competitive bidding, at the same time exploring market-oriented approaches such as PPP (public private partnership) and trust operations. The target is

to provide broadband connections for about 50,000 villages (98% coverage for all villages) and speed upgrade for more than 30 million rural households by 2020. The estimated total investment is over RMB140 billion.

In May 2015, China Mobile, China Unicom, and China Telecom announced tariff reduction measures, following Premier Li’s calls to reduce wireline and wireless data tariff. CM, CU, and CT aim to cut data tariff by 35%, 20%, and 30% yoy respectively with measures including free data

for new 4G customers, discounted tariff for low-traffic hours, unlimited voice/SMS for high-end customers, and cutting international roaming tariff.

Gauging China’s FTTH market demand – RMB300bn capex over 2016E-2020E Based on the “Broadband China” plan, we estimate there are 270mn fixed broadband subscribers by the end of 2015, of which 70mn are FTTH (fiber-to-the-home) subscribers. By 2020, “Broadband China” sets target for fixed broadband subscriber at 400mn. If we assume by then, all of the subscribers are on FTTH, this would translate into an incremental 330mn subscribers. According to China Telecom, the last mile capex per home for FTTH is RMB900, which means

the last mile FTTH capex could potentially be up to about RMB300bn from 2016E to 2020E, or RMB60bn per year.

China Telecom – the largest fixed broadband service provider in China with 53% subscriber market share and 70% revenue market share (we estimate) – budgeted Rmb13-14bn broadband access capex in 2015, which is less than 25% of the RMB60bn per year we forecast for the next five years. Therefore, we see further upside in the fiber broadband access capex investment,

which should benefit the optical equipment vendors as well as optical component suppliers, especially Accelink and Fiberhome.



Exhibit 25: Broadband China

Source: State Council.

Exhibit 26: Fixed broadband subscriber

Exhibit 27: 3G/4G subscriber and net adds

Source: MIIT.

Source: MIIT, Company data.

Index Unit 2013 2015 2020

1. Broadband subscribers

Fixed broadband subscribers million 210 270 400

Fiber to the home (FTTH) subscribers million 30 70 NA

Urban subscribers million 160 200 NA

Rural subscribers million 50 70 NA

3G / LTE subscribers million 330 450 1,200

2. Broadband penetration levels

Fixed broadband household penetration % 40% 50% 70%

Urban household penetration % 55% 65% NA

Rural household penetration % 20% 30% NA

3G / LTE subscriber penetration % 25% 33% 85%

3. Broadband network capability

Urban broadband access Mbps 20 (80% of subs) 20 50

Developed cities Mbps NA 100 (selected cities) 1,000 (selected subs)

Rural broadband access Mbps 4 (85% of subs) 4 12

Large enterprises access bandwidth Mbps NA >100 >1,000

Internet international outlet bandwidth Gbps 2,500 6,500 NA

FTTH household coverage million 130 200 300

3G / LTE base station number thousand 950 1,200 NA

Proportion of administrative villages with broadband access % 90 95 >98

National cable TV network interactive platform penetration % 60 80 >95

4. Broadband Information application

Number of Internet users million 700 850 1,100

Rural Internet users million 180 200 NA

Internet traffic volume (Web total bytes ) Terabytes 7,800 15,000 NA

E-commerce transaction value RMB trillion 10 18 NA

"Broadband China " development targets and timetable

23,114

24,660

24,183

19,055 11,574

-

50,000

100,000

150,000

200,000

250,000

2010 2011 2012 2013 2014

Fixed broadband subscribers ('000) Subscriber net adds ('000)

36,832

80,469

105,913

183,899

186,219

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2010 2011 2012 2013 2014

3G/4G total subs ('000) 3G/4G net adds ('000)



Exhibit 28: CM CU and CT announced plans to cut mobile data tariff by 20%-35% in 2015 CM CU CT announced tariff cut and speed upgrade plans.

Source: Company data.

China Mobile China Unicom China TelecomMobile tariff

Target on tariff cut Mobile data tariff: down 35% yoy in 2015 Mobile data tariff: down 20% yoy in 2015 Mobile data tariff: down 30% yoy in 2015

Measures

to promote special package for nights (23:00 PM to 7:00

AM) - Rmb10, 1GB

to promote semi-annual local data packages -

Rmb10 for 1.5GB

to promote Rmb49 4G package with 2GB local data

traffic

to promote special package for holidays - Rmb10, 1GBto launch special data packages for particular use,

such as Rmb18 for 6GB for watching online video

to upgrade customers to 4G packages, which offer 2X

data with the same monthly payment vs. 3G

to promote 4G data card packages - Rmb 50, 2GBto launch a flatform that customers can give away,

share or exchange data trafficto give away 1GB free data for new 4G customers

to cut tariff for data usage exceeding the package limit

to offer 1GB free data usage at night hours (23:00 PM to

7:00 AM) for customers who subscribe packages with

1GB above

to offer 1GB free data usage at night for customers who

subscribe packages with 1GB above

to give away free data for special use, such as 90GB

free data for Tencent video users; 2GB free data for

Tianyi Taobao users

to offer unlimited voice/SMS packages to FOUR/FIVE star

customers - Rmb338 (3GB)/Rmb418(6GB)/Rmb518(11GB)

to promote packages for low-traffic hours - Rmb20 for

3GB data in nights (23:00 PM to 7:00 AM)

to cut international data roaming tariff by 70% in 48

countries/regionsto offer discounts to entrepreneurs

to offer more flexible services such as traffic sharing,

traffic trading and terminating monthly zero clearing of un-

used data

to announce lower data roaming tariff in June and to

cut international data roaming tariff by up to 90%

to offer more flexible data packages - such as annual

data package (no monthly zero clearing of un-used

data); Voice-data-MSM exchangable packages

Mobile networks

to enhance backbone transmission networkto expand 3G/4G network coverage and to cover

95% of population by end of 2015

to accelerate 4G network build-up and to expand 4G

coverage of all counties nationwide and all key

villages/towers in east China

to expand and optimize CMNET network

to increase international output bandwidth

to enhance 4G network; to reach 1mn 4G base stations,

seamless coverage from cities to counties, full coverage

along high-speed railways, 85% population coverage by

end of 2015

Fixed line broadband tariff

Target on tariff cut tariff per MB to decline by 35% yoy

Measures

to lower the fixed line broadband packages in

Beijing: from Rmb1780 to Rmb1480 per year (20M);

from Rmb2680 to Rmb1780 per year (50M); from

Rmb3280 to Rmb1980 per year (100M)

to upgrade the bandwidth to 4Mbps for free for all

customers with slower than 4Mbps bandwidth; for

customers with 4Mbps+ bandwidth, to promote free

upgrade through down payments or bundled plans

to cut the annual package charge for 100Mbps

bandwidth by more than 30%; to those who subscribe

Rmb299 and above monthly 4G packages, they can

enjoy the 100Mbps fixed line broadband for free

Fixed line broadband networks

to accelerate the fiberization of broadband network

and to complete the fiber upgrade of the whole

network by end of 2016; to enable 20M broadband

access in cities in the 10 provinces in Northern

China and 4M in villages by end of 2015

the average fixed line broadband access rate to

increase to 20Mbps from 11Mbps by end of 2015

to accelerate the fiberization of broadband network and

to complete the fiber upgrade for 80% of residential

areas with copper lines; 100Mbps FTTH coverage to

reach 200mn households by end of 2015



Sector driver II: China’s data center and cloud service providers are charging up for growth

We expect strong growth for China’s data center and public cloud service market… While slowing capex spend by the China Telcos is a negative for downstream industry demand,

we believe the rise of carrier-neutral data centers and public cloud service providers will help offset some of the decline in telcos’ capex spend. Our analysts expect the largest public cloud service provider in China – Aliyun, as well as the global market leader – AWS to spend a significant amount of capex in the coming years. Among our coverage, we believe Accelink is best positioned to benefit from the strong growth in the Datacom sector. According to the company, BAT (Baidu/Alibaba/Tencent) began large-scale deployment of optical-module solution

in their data centers in 2014. Accelink generated RMB100mn revenue in 2014 from data center demand of BAT, and expects 100% yoy growth over the next few years.

Data center vs. Cloud: While the phrases “data center” and “cloud” are sometimes

used interchangeably, there are differences between the two. The main difference is that a cloud is an off-premise form of computing that stores data on the Internet, whereas a data center refers to on-premise hardware that stores data within an organization's local

network. Although both types of computing systems can store data, as a physical unit, only a data center can store servers and other equipment. As such, cloud service providers use data centers to house cloud services and cloud-based resources.

A public cloud allows services to be provided using shared physical resources and is accessible over a public network (the internet). A private cloud is only accessible by a single organization, enabling greater control and privacy. Carrier-Neutral data center

allows interconnection between multiple telecommunication carriers and/or colocation providers.

TechNavio forecasts China’s Data Center Market in to grow at a CAGR of 18.18% over the period 2013-2018. IDC (International Data Corporation) forecasted the global big data technology and service market revenue will reach US$23.8bn in 2016, and China’s market size will grow to US$617mn in 2016 from US$77.6mn in 2011, a CAGR of 51.4% or 7X.

State-owned telecom carriers previously dominated the market, collectively drawing two thirds of the country's total colocation revenue back in 2012. Over the past few years, carrier neutral data center/cloud service providers have been taking an increasing amount of market share to reach the same scale as the traditional carriers in 2014.

According to China Telecom, it gained IDC revenue of RMB5.9bn (+23% yoy) and cloud revenue of RMB500mn (+54% yoy) during 1H15. China Unicom also said its IDC revenue grew 36% yoy

in 1H15.



Exhibit 29: China Telecom and China Unicom are the two biggest data center providers in China

Exhibit 30: Carrier neutral data center providers will overtake traditional telco-operated data centers in 2015

Source: IDC.

Source: IDC, Gao Hua Securities Research.

… which is also a focus industry for the government In March 2015, China’s Premier Li Keqiang presented the “Internet Plus” plan in his Government Work Report. According to Li, the "Internet Plus" action plan will integrate mobile internet, cloud computing, big data and the Internet of Things with modern manufacturing, to encourage the healthy development of e-commerce, industrial networks, and Internet banking, and to help

Internet companies increase their international presence. We believe to achieve this goal, state-of-the-art data center/cloud network infrastructure is crucial to support the data consumption and transmission growth, which will be generated from an increasing level of human-to-machine and machine-to-machine connections.

In our view, China started the preparation back in 2013, when the MIIT (Ministry of Industry and Information Technology) issued “Guidance on Data Center Construction Layout”. From 2011 to

1H2013, China built a total of 255 data centers, 173 had been put into use, with total land area of about 7,132,000 square meters, and room area of about 4,000,000 square meters.

(1) Scale: among the 255 data centers under construction planning, 23 were hyper scale

data centers (hosting 10,000 standard racks or above, with 2.5 kilowatts of power for a standard rack), 42 were large scale data centers (hosting between 3,000-10,000 standard racks), and 190 were medium & small scale data centers (hosting below 3,000

standard racks).

(2) Production: The total number of servers planned for the 255 data centers were around

7.28 million. Actual number of servers in production was about 570,000, accounting for 7.8% of the planned size, among which hyper scale, large scale, and medium & small scale data center production rate was 1.8%, 21.5% and 40%, respectively.

(3) Layout: the 255 planned data centers will be located in 26 provinces, autonomous

regions and municipalities. For the 65 hyper scale and large scale data centers, more than half will be located near energy-rich or low-temperature regions, 12 will be mainly used for disaster recovery.

(4) Energy efficiency: close to 90% of the 255 data centers are designed with PUE

(Power Usage Effectiveness = total facility energy / IT equipment energy) of lower than 2.0, with average PUE of 1.73. Average PUE for hyper scale and large scale data

centers is designed at 1.48, and 1.80 for medium & small scale data centers. In addition,

China Telecom, 39%

China Unicom, 20%

China Mobile, 3%

Carrier Neutral Providers, 38%

China data center market share (2012)

59.2% 54.5% 49.8% 45.1%

40.8% 45.5% 50.2% 54.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2012 2013 2014E 2015E

Telecom carriers Carrier Neutral



PUE for some of the old data centers have been reduced to below 2.0 thanks to transformation using advanced energy-saving cooling technologies.

(5) Policy support: over 70% of the 65 hyper scale and large scale data centers received

policy support for large industrial or direct supply power consumption, i.e. lower price. Average electricity price for the 255 data centers is RMB0.87/kWh, average for hyper scale and large scale data centers is RMB0.66/kWh and RMB0.78/kWh respectively, with the lowest price at RMB0.3/kWh.

(6) Leading applications: a few examples of successful implementation of government

procurement of cloud services:

a. The Water Resources Department of Zhejiang Province outsourced its typhoon path Immediate Release System project to Aliyun;

b. Gansu Province and Xinjiang Uygur Autonomous Region have migrated part of their e-government systems to a third-party cloud service provider;

c. Guizhou Province’s new rural cooperative project is using cloud services provided by China Mobile, and has become one of the benchmarks for the

medical information technology construction at Ministry of Health.

(7) Standard evaluation: Introduced the "Internet Data Center Technology and

Classification & Taxonomy Standards" and "Internet Data Center Resource Consumption, Energy Efficiency, Emissions Technology Requirements and Evaluation Methods" and other industry standards. Third parties conducted green grading evaluation at six data centers owned by Baidu, Tencent, Alibaba, China Telecom, China

Mobile, China Unicom. The best result was 1.36 annual average PUE for a data center.

Case Study: Aliyun is the leader in China’s public cloud service market IDC forecasts China’s public cloud market to grow at a CAGR of 30% from 2014 to 2018, driven by strong internet traffic growth, which Cisco forecasts to be 32% yoy in 2015 and 25% yoy in 2016.



Aliyun (not listed) is Alibaba Group’s (covered by Piyush Mubayi) cloud computing arm established in September 2009; it is a market leader in cloud computing services in China, capturing 22.8% public cloud market share in 1H14, followed by China Telecom and China

Unicom, then Microsoft Windows Azure and Amazon Web Services (AWS). As the market leader, we believe Aliyun provides a good indication of where the industry is heading given it is further along the learning curve.

In the September quarter this year, Aliyun saw its revenue growth from cloud computing and internet infrastructure increase 128% year-on-year, reaching RMB649mn (US$102mn), driven by the accelerated growth of its cloud computing business.

Exhibit 31: Cisco VNI forecasts China’s internet traffic to grow at 35.8% (2012-16 CAGR)

Exhibit 32: IDC forecasts China’s public cloud market to grow at 30% CAGR over 2014-2018

Source: Cisco VNI.

Source: IDC.

Exhibit 33: Aliyun’s revenue has been accelerating over the past three years March year-end

Exhibit 34: Aliyun’s revenue grew 64% yoy in FY2015 and 128% yoy in 2QFY16 March year-end



Aliyun currently operates data centers in China (Beijing, Hangzhou, Qingdao, Shenzhen, Hong Kong, Shanghai), Singapore, and the US. Japan, Dubai, and Germany are also in its pipeline. In March 2015, Aliyun announced that it was opening a data center in Santa Clara, California, as the first step in expanding the its reach into the U.S. cloud services market. In Aug 2015, Aliyun

announced that it plans to build a new cloud data center in Singapore, scheduled for launch in

45%43%

32%

25%

20%

25%

30%

35%

40%

45%

50%

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015 2016

China internet traffic forecast (Petabytes)

‐

500

1,000

1,500

2,000

2,500

2014 2015 2016 2017 2018

China public cloud market size forecast (US$ mn)

174 190 196 213 236 285 362 388

485

649

12% 16% 19%28%

36%

50%

85% 82%

106%

128%

0%

20%

40%

60%

80%

100%

120%

140%

-

100

200

300

400

500

600

700

Alibaba cloud revenue (RMB mn) Yoy growth (%)

515 650

773

1,271 26%

19%

64%

0%

10%

20%

30%

40%

50%

60%

70%

-

200

400

600

800

1,000

1,200

1,400

FY2012 FY2013 FY2014 FY2015




early September 2015. The Singapore facility will be its seventh cloud data center globally. As part of its global expansion plan, Aliyun has also named Singapore as its overseas headquarters.

Exhibit 35: Aliyun’s opened and planned data centers around the world


Currently Aliyun’s revenue size is about 4%-5% of Amazon Web Services (AWS) – the global leader in cloud service provision. Per our China internet analyst Piyush Mubayi’s forecasts,

Aliyun’s revenue will grow at a CAGR of 75% from FY2015 to FY2020E to reach US$3.2bn, during which time Alibaba’s accumulated capex is expected be c.US$14bn.

Exhibit 36: We expect Alibaba’s cloud revenue (Aliyun) to reach over US$3.2bn by FY20E March year-end

Exhibit 37: We forecast Alibaba to spend a total of US$14bn in capex from FY15 to FY20E March year-end

Source: Company data, Goldman Sachs Global Investment Research.


650 773 1,271 2,567 4,750 7,980

13,134

20,771

26%19%

64%

102%

85%

68% 65%58%

0%

20%

40%

60%

80%

100%

120%

-

5,000

10,000

15,000

20,000

25,000


2,503 4,776 7,705

9,974 12,747

16,236

20,308

24,941

15%

91%

61%

29% 28% 27% 25% 23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-

5,000

10,000

15,000

20,000

25,000

30,000

Alibaba capex (RMB mn) Yoy growth (%)



Exhibit 38: Goldman Sachs forecasts AWS revenue to reach US$40bn by 2019E

Exhibit 39: Goldman Sachs forecasts AWS to spend a total of US$16bn capex from 2015E- 2019E



5 26 76 193 455 1,002 1,836 3,108

4,644 7,949 12,615

19,300

28,565

40,276

395%

192%

152%136%

120%

83% 69%49%

71% 59% 53% 48% 41%

0%

50%

100%

150%

200%

250%

300%

350%

400%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

AWS revenue (US$ mn) Yoy growth (%)



China CommTech: From zero to hero; three decades of development

1980s – 1990s: import, digest & absorb, and re-create In the beginning of the Chinese economic reform in 1978, the scale of China’s

telecommunications equipment manufacturing industry was minimal, and the overall technology was two to three generations behind international advanced levels, which could not meet the demand for advanced communications equipment for large-scale communication network construction. In order to shorten the technology gap with developed markets and accelerate the domestic communication networks’ upgrade process, China’s Telecommunications Department implemented a three-step strategy to “import, digest & absorb, re-create” international advanced

technologies throughout the 1980s. In 1982, China imported from Japan, the first digital PBX (private branch exchange); since then, China continued to import a series of advanced telephone switching equipment from the United States, Canada, Germany, Sweden and other developed countries. In 1984, the first joint venture between China and Bell Labs in the field of communications equipment – Shanghai Bell – was established. Throughout the 1980s, China spent almost 10 years learning advanced production and management experience in

communications technology from developed markets and gradually accumulated research and manufacture capabilities in the field of PBX.

1990s – 2000s: independent R&D Starting from the 1990s, China accelerated the pace of self-development and innovation in the domestic telecommunications industry. In December 1991, China's first digital PBX – HJD-04 was successfully jointly developed by the Posts and Telecommunications Industry Corporation and the PLA Information & Engineering College. To promote large-scale industrialization of HJD-04, t the Posts and Telecommunications Industry Corporation and the PLA Information & Engineering College jointly set up Julong (Great Dragon). By the end of 1998, cumulative sales of HJD-04

reached 17 million, accounting for 15 % of total capacity for China's central office PBX, and exported to overseas markets. The success of HJD-04 drove breakthrough in the field of digital program-controlled switches. Shortly thereafter, Datang, ZTE, Huawei etc. also successfully developed a number of switches (C&C08, SP-30, ZXJ10, EIM-601), which were deployed in domestic telecommunications networks on a large-scale and formed the so-called “JDZH” (meaning “Great China”) within the communications industry in China. In 1996, the Chinese

government began explicitly supporting domestic telecommunications equipment companies, ending special import policies for telecoms equipment.

2000s – Present: rising to the global stage From the early 2000s to present, China's communications technology level reached international advanced status in some of the major fields. In 2001, China's home-grown 3G mobile technology TD-SCDMA was accepted by ITU as one of the three 3G standards globally. Since then, China had also been keeping pace with developed markets in the field of NGN, IPTV, and optical networks etc. In addition, some of the technical standards proposed by Chinese enterprises were increasingly accepted by ITU. Building on the foundation of TD-SCDMA, China’s domestically

developed 4G technology TD-LTE has been much more widely accepted (compared to TD-SCDMA) by telecom operators around the world. As of July 2015, 422 LTE networks were commercially launched in 143 countries, and 59 operators (about 1 in 7) launched LTE TDD (TDLTE) in 35 countries. Telecom equipment companies such as Huawei and ZTE have grown into some of the biggest communications equipment manufacturers globally. Chinese companies have also become more and more involved in the international communications technology



standard setting process, exerting more impact on the development of communications technology.

Chinese companies’ competitive advantage: low cost, fast response, full-suite customized service For quite a long time since the Chinese economic reform, China has attracted multi-national companies from developed countries to set up production bases in China with its low cost land and labor. China became the largest producer of communications equipment manufacturing in the

late 20th century and had the largest production volume for many varieties of communications equipment. PBX, mobile phone, optical fiber/cable, GSM system equipment, optical transmission equipment and related ancillary products not only met the needs of the Chinese market, but were also exported to international markets for communications network construction.

From the beginning of the 21st century, some well-known multinational communications equipment manufacturers migrated their R&D centers to Shanghai, Beijing, Chengdu, Shenzhen

and other big Chinese cities, drawn by China’s abundant supply of IT professionals.

Compared with multinational companies in developed countries, Chinese companies were initially disadvantaged in terms of technology due to a weak foundation due to a later start to the industry. Faced with fierce competition and the reality of multiple vendor coexistence in the market, Chinese companies relied on rapid response capabilities and full-suite services to make up for technology gaps, and earn trust and recognition of operators.

In 2005, Huawei was short listed for British Telecom’s 21st Century Network Construction, marking international recognition of Chinese equipment manufacturers’ comprehensive capability.

Exhibit 40: Gross margin is typically lower for Chinese CommTech companies on lower pricing (2014)

Exhibit 41: EBIT margin gap is smaller, demonstrating lower SG&A for Chinese CommTech companies (2014)



Government support measures aid industry growth Throughout the years, the government has been advocating and supporting the development of China’s communications technology industry with various types of measures such as government grants and tax benefits.

There are two main types of government grants: general/income-related and project/asset-related. The accounting practice is illustrated below in Exhibit 42.

44% 44% 44% 43%

37%34% 33% 32%

29%26%

23%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%Gross margin

12%11%

8% 8% 8%7%

6%6%

5%4%

1%

0%

2%

4%

6%

8%

10%

12%

14% EBIT margin



Exhibit 42: Chinese CommTech companies receive both general as well as project-based government grants


Tax benefits also come in different types, including tax rate deduction, tax rebate, tax exemption etc. Details are listed below in Exhibit 43.

Exhibit 43: Chinese high tech/new tech companies enjoy various types of tax benefits


As a result of these government support policies, Chinese CommTech companies are relieved of part their its R&D and tax expenses. Among global peers, Huawei, ZTE, Fiberhome and Accelink have the lowest R&D expense as % of revenue ratio, and relatively lower effective tax rates.

Government grant

General/Income‐related Directly recognised as other income.

Initially recognised in the consolidated

statement of financial position as deferred

income/government grants and are

amortised through the consolidated

statement of profit or loss on a systematic

basis in the same periods in which the

related research and development

expenses are incurred.

Project/Asset‐related

Standard 25%

Hi‐tech/New‐tech enterprise 15%

National Programming Layout

Key software enterprise 10%

Integrated circuit design enterprise 10%

Software enterprise

Enterprise income tax exemption in the 1st and 2nd profitable years 0%

50% reduction in enterprise income tax from the 3rd to 5th years 12.5%

Export tax rebate for government encouraged products 17%

Enterprise

income tax rateTax incentive



Exhibit 44: Government grants help Chinese CommTech companies relieve some R&D expense pressure (2014)

Exhibit 45: Chinese CommTech companies enjoy favorable tax rates compared to global peers (2014)



Exhibit 46: Government grants ranged from RMB21mn to RMB1.3bn, or 0.4% to 1.7% of revenue (2014)

Exhibit 47: Grants are included in EBIT for Huawei/ZTE, while excluded for Accelink/Fiberhome (2014)



20%19%

17% 17% 16% 16%14% 14%

11% 11%10%

0%

5%

10%

15%

20%

25% R&D expense as % of revenue 45%

30%

25%21%

16%12%

8% 7%5% 5% 4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50% Effective income tax rate

7%6%

12%

6%6%

4%

12%

5%

0%

2%

4%

6%

8%

10%

12%

14%

Huawei ZTE Accelink Fiberhome

EBIT margin incl ‐ Government grant EBIT margin

EBIT margin ex ‐ Government grant



Case study: The making of Huawei – “surrounding the cities from the countryside” strategy

Huawei Technologies Co. Ltd. (unlisted) is one of the world’s largest CommTech companies and holds over 40% market share in the China telecom equipment space, making it a key client for the component makers. We believe its strategy and business focus provides good insight into the

industry’s overall direction and growth trajectory. Accelink is a supplier for the equipment vendors including Huawei, whereas ZTE and Fiberhome compete with Huawei in both domestic and overseas markets.

Huawei was founded in 1987 by Ren Zhengfei. The company started out as a sales agent for a HK company producing Private Branch Exchange (PBX) switches. Now almost three decades later, Huawei has evolved into one of the biggest communications equipment and service

providers globally. Among the top five CommTech suppliers, Huawei leads the pack with 36% revenue (including handset) share in 2014, ahead of Ericsson in Sweden (27%), Alcatel-Lucent in France (14%), Nokia in Finland (14%), and ZTE in China (10%).

Excluding revenue from consumer business (mainly smartphones), Huawei came in slightly behind Ericsson with 16.1% market share in 2014 (Gartner). We estimate Huawei takes up over 40% market share in 2014 in the China telecom equipment space.

Exhibit 48: Top five revenue size in US$ mn (2014)

Exhibit 49: Top five revenue share in US$ mn (2014)

Source: Company data, Bloomberg.


Exhibit 50: The global communications equipment space is concentrated around 4-5 large vendors (2014)

Exhibit 51: Huawei and ZTE dominates 50%-60% market share in China

Source: Gartner


46,515

34,743

18,206 17,590 13,204

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Huawei ,

36%

Ericsson, 27%

Alcatel-

Lucent , 14%

Nokia, 14%

ZTE , 10%

Ericsson, 17.7%

Huawei, 16.1%

Alcatel‐Lucent, 8.7%

Nokia Networks, 8.2%

Cisco, 5.6%ZTE, 5.1%

NEC, 2.7%

Samsung, 1.9%

Accenture, 1.9%

IBM, 1.8%

Others, 30.1%

Huawei, 42%

ZTE, 15%

Nokia, 10%


Ericsson, 7.5%

Fiberhome, 4%

Others, 13%

China Telecom Equipment market share (2014)



Taking the road less travelled – focus on R&D and unique strategy are the key to success In our view, there are two key contributing factors to Huawei’s success: (1) early focus on independent R&D and (2) the unique strategy of “surrounding the cities from the countryside”.

Focus on independent R&D Huawei started independent research in 1990, three years after the company was established. In 2014, Huawei spent RMB41bn (US$6.6bn) in R&D, higher than all the other top five global CommTech vendors. Out of its total employee of over 170,000, about 76,000 are in R&D,

representing about 45% of its total staff. Over the years, Huawei has established 21 R&D facilities across the world, including China, the United States, Canada, the United Kingdom, Pakistan, France, Belgium, Germany, Colombia, Sweden, Ireland, India, Russia, and Turkey. Huawei has also been very active in terms of patent application. In 2014, it topped the chart with a total of 3,442 PCT applications, according to the World Intellectual Property Organization (WIPO).

Self-developed technologies helped Huawei differentiate itself from other competitors, and also

saved the company IP right costs. A case in point is SingleRAN. Huawei SingleRAN is a radio access network (RAN) technology that allows mobile operators to support multiple mobile communications standards on a single network. Since its launch in 2008, SingleRAN has become a global industry standard and top operators’ choice for multi-RAT network construction and operation. By 1Q14, Huawei had signed more than 256 commercial SingleRAN contracts worldwide. According to The Economist (September 24, 2009), América Móvil found that the

power consumption of its base stations was reduced by 50% and the volume of equipment it needed was reduced by 70%, following deployment of Huawei’s SingleRAN hardware.

Exhibit 52: Huawei spent US$6.6bn in R&D in 2014, highest among top five CommTech vendors

Exhibit 53: Huawei topped the PCT applications chart in 2014, as well as number of incremental applications


Source: World Intellectual Property Organization (WIPO).

“Surrounding the cities from the countryside” strategy Huawei started out in 1987 as a sales agent for Hong Kong company producing Private Branch Exchange (PBX) switches. It embarked on independent research and commercialization of PBX technologies targeting hotels and small enterprises in 1990. In 1992, Huawei launched its rural digital switching solution, targeting rural markets normally underserved by other vendors but with

great deployment needs, and avoiding urban markets where competition was intense. Significant levels of customization were necessary to deal with issues that one only encountered in the rural areas, such as variable power supplies, theft, and rat issues. By 1995, the company generated

6,592

5,487

3,446 3,027

1,460

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

R&D expense (2014)(US$ mn)3,442

2,4092,179

1,682 1,593 1,539 1,512 1,460 1,399 1,3911,332

351

‐130

‐1,157

280

‐332

44

652

51

‐32

‐1,500

‐1,000

‐500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

PCT applications (2014) Change from 2013



RMB1.5bn in revenue mainly from rural areas. After gaining a strong foothold and reputation in the rural markets at first, Huawei expanded into China’s urban areas in 1997.

International expansion

Phase I – Developing markets

In some ways, Huawei’s international expansion route was a modified version of “surrounding the cities from the countryside”, in which case it was focusing on developing markets instead of the

countryside, and developed markets instead of cities. Huawei’s first international customer was Hutchison Telecommunications (owned by Li Ka-Shing) in Hong Kong in 1996, which procured switches and related products for its fixed-line network. Soon after entering Hong Kong, Huawei expanded into more international markets such as Russia, Thailand, Brazil, and South Africa, Ethiopia, Nigeria, Ghana etc.

Phase II – Developed markets

Building on its successful entrance into the developing markets, Huawei started conquering the developed markets, where competition is fierce and opponents formidable. In 2004, Huawei achieved its first significant contract win in Europe valued at over US$25mn with Dutch operator, Telfort. In 2005, its international contract orders exceed domestic sales for the first time. Huawei's market share in Europe increased from 2.5% in 2006 to 25% in 2014. In North America, Huawei secured its first large scale commercial deployment of UMTS/HSPA for TELUS and Bell Canada

in 2008.

After more than a decade of global expansion efforts, Huawei morphed into one of the leading telecom equipment vendors worldwide, ranking No. 3 by Informa in terms of worldwide market share in mobile network equipment in 2008, and No.2 in global market share of radio access equipment in 2009. If it continues to gain market share as it has in recent years, it may soon surpass Ericsson to be the No.1 CommTech equipment vendor worldwide.

Now Huawei has also become a leader in smartphone development, manufacture, and sales. It is also actively involved in 5G development, software services, cloud computing etc. We expect many more developments from Huawei in the future.

2015年

12月

8日

中

国：通讯技术

全球

投资研究

32

Exhibit 54: Huawei company milestones


1987

Established in Shenzhen

1990

Started independent

research

1992

Launched rural digital switching

solution

1995

RMB1.5bn revenue

1997

Expanded into Urban China

1999

R&D center in Bangalore

2000

R&D center in Stockholm; US$100mn int’l revenue

2001

4 R&D centers in the U.S.; Joined ITU

2002

US$552mn int’l revenue

2003

JV with 3Com

2004

JV with Siemens; Contract with Telfort

2006

R&D center in Shanghai with

Motorola

2007

Partner with all top EU

operators

2008

Global No.3 MS in mobile network

equipment

2009

Global No.2 MS in radio access equipment

2011

20 cloud computing

data centers; 20 mn

smartphones

2012

R&D center in Finland

2013

5G White paper; 400G router & 1T

line card




We believe Huawei will be a key source of demand for components given its market leading position, integrated business model and higher than global peers’ revenue growth and profitability.

Huawei has three major business segments:

1. Carrier Business: Develops and manufactures a wide range of wireless networks,

fixed networks, carrier software and core networks, as well as services solutions to telecommunications operators.

2. Enterprise Business: Develops integratable information and communications

technology (ICT) products and solutions including enterprise network infrastructure, cloud-based green data centers, enterprise information security and unified

communication & collaboration, and delivers these solutions to vertical industries such as governments & public utilities, enterprises, energy, power, transportation and finance.

3. Consumer Business: Develops and manufactures mobile broadband devices, home

devices, smartphones, as well as the applications on these devices, and delivers them to consumers and businesses.

In 2014, Huawei’s traditional carrier business revenue grew 16% yoy to account for 67% of total

revenue, driven by the intensive capex spending mainly at the three Chinese telcos. Consumer business revenue grew 33% yoy to account for 26% of total revenue as Huawei’s smartphones became largely popular in both domestic and overseas markets. Enterprise business revenue grew 27% yoy to account for 7% of total revenue, driven by the proliferation of cloud service providers.

In 2014, Huawei reported total revenue of RMB288bn, of which RMB109bn (38%) was generated

from China, RMB101bn (35%) from EMEA, RMB42bn (15%) from Asia Pacific, RMB31bn (11%) from Americas, and RMB5bn (2%) from Others. We saw growth rates accelerate in all markets, and China led the pack with 32% yoy, while EMEA 20% yoy, Asia Pacific 10% yoy, Others 20% yoy.

Exhibit 55: Huawei revenue breakdown by business segment

Exhibit 56: Huawei revenue breakdown by geography



80%74% 73% 69% 67%

3%4% 5%

6% 7%

17% 22% 22% 24% 26%

- 0% 0% 1% 1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Carrier business Enterprise business Consumers' business Others

32% 33% 35% 38%

36% 35% 35%35%

17% 17% 16% 15%

15% 14% 12% 11%- - 2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014

China EMEA Asia Pacific Americas Others



Exhibit 57: Huawei’s revenue yoy growth by business segment

Exhibit 58: Huawei’s revenue yoy growth by geography



Compared to peers, Huawei has the highest yoy revenue growth over the past three years and the highest gross margin over the past six years. Huawei has established itself as a world leader in the CommTech industry.

Herfindahl Index calculated from revenue market share based on Gartner’s data shows that the CommTech industry has become more competitive over the past five years, but intensity could ease starting from 2015 as Huawei has established incumbent status in the European market this year, and Nokia’s proposed acquisition of Alcatel-Lucent is set for closure early next year.

Not only does Huawei have a strong income statement, it is also has superior working capital management and free cash flow generation. Huawei has always had a negative cash conversion

cycle (receivable days + inventory days – payable days), and the metric has improved consistently over the past 10 years. Receivable days and inventory days are managed around industry average levels. It also consistently generated positive strong free cash flow, and growing over 100% yoy in 2014, significantly outperforming some of its peers.

Exhibit 59: Communications service provider HHI based on revenue market share market share based on revenue in US$

Exhibit 60: Global telecom equipment revenue growth comparison in reporting currency

Source: Gartner, Gao Hua Securities Research.


-

10%

20%

30%

40%

50%

60%

2011 2012 2013 2014

Carrier business Enterprise business Consumers business

(10%)

(5%)

-

5%

10%

15%

20%

25%

30%

35%

2011 2012 2013 2014

China EMEA Asia Pacific Americas

10.5%

8.5% 8.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2010 2013 2014

Communications service provider Herfindahl Index based on revenue market share

‐60%

‐40%

‐20%

0%

20%

40%

60%Revenue growth yoy %

Alcatel‐Lucent Ericsson Nokia ZTE Huawei



Exhibit 61: Global telecom equipment gross margin comparison (in reporting currency)

Exhibit 62: Global telecom equipment EBIT margin comparison (in reporting currency)



Exhibit 63: Huawei’s account receivable days and cash conversion cycle continues to improve

Exhibit 64: Huawei’s free cash flow grew 101% yoy in 2014 to US$5.5bn



Exhibit 65: Huawei’s account receivable days is in line with industry average (2014)

Exhibit 66: Huawei’s inventory days is in line with industry average (2014)



20%

25%

30%

35%

40%

45%

50%Gross margin %


‐10%

‐5%

0%

5%

10%

15%

20%

25%EBIT margin %


(180)

(160)

(140)

(120)

(100)

(80)

(60)

(40)

(20)

-

100

110

120

130

140

150

160

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Account receivable days Cash conversion cycle (RHS)

2,703

3,480

1,868

2,957 2,716

5,454

-

1,000

2,000

3,000

4,000

5,000

6,000

2009 2010 2011 2012 2013 2014

Huawei free cash flow (US$ mn)

197

143 133

101 80 75 71 70

-

50

100

150

200

250

Account receivable days

Average

195

135 113 106

80 75 68 66

-

50

100

150

200

250

Inventory days

Average

2015年

12月

8日

中国：通讯技术

全球投资研究

36

Exhibit 67: Huawei corporate structure

Source: Company data, Gao Hua Securities




Valuation: introducing Matrix valuation framework

We use a P/E-based valuation framework for China CommTech We introduce our Matrix valuation framework for our China Communications Technology sector. This P/E-based framework is built on a Matrix of global CommTech industry peer multiples (both GS covered and uncovered) in the US, Europe, and Japan. The stocks used in our Matrix

analysis include a mixture of equipment makers and component makers including, covered companies: Alcatel-Lucent, Ericsson, Nokia, Cisco, Juniper, Adtran, Arris, Ciena, Infinera, Finisar, Lumentum, Viavi (JDS Uniphase), Avago, Sumitomo Electric, and non-covered companies: Oclaro, NeoPhotonics, II-VI, Applied Optoelectronics, and IPG Photonics.

We classify these global peers into 9 categories based on their growth and return profile over 2004 – 2014; we then use the Matrix to derive the corresponding target P/E multiple for each of

our stocks and apply it to 2017E EPS (see Appendix II for more detail). The two metrics we use are “change in EPS growth” and “change in CROCI”, as we believe in a cyclical industry like communications technology, investors are prepared to pay for the second derivative, or the momentum of change.

We then apply a 40% premium for Shenzhen stock exchange listed companies – Accelink and ZTE A as historically the Shenzhen Composite Index has traded at an average 40% P/E premium

to MSCI World Index, whereas the Shanghai Composite Index (5% premium) and Hang Seng Index (8% discount) traded broadly in line with MSCI World, hence we apply no premium for Fiberhome (Shanghai listed) and ZTE H (Hong Kong listed). For ZTE H and A, we use the average of the H/A multiples as we believe A and H valuations should converge after the launch of the Shenzhen-Hong Kong Stock Connect as offshore investors obtain more access to the China onshore market and vice versa; our China Strategist expects it to be launched in 1H16.

Exhibit 68: Matrix valuation framework Implied P/E (x) based on average fwd P/E over 2004-2014

Source: Bloomberg, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

17X NA 26XAccelink,

Fiberhome,26X

15X 19X 19X

12X NA 17X ZTE, 12X

Ch

an

ge

in

EP

S g

row

th

(04

-14

av

era

ge

)

-5%

5%

15%+

-1.5% -0.5% 0.5% 1.5%+

-15%

Change in CROCI(04-14 average)

Ch

an

ge

in

EP

S g

row

th

(14

-17

E a

ve

rag

e)

Change in CROCI(14-17E average)

-5%

5%

15%+

-1.5% -0.5% 0.5% 1.5%+

-15%



Exhibit 69: Ratings and 12-month target price derivation

* Conviction List

Source: Bloomberg, Gao Hua Securities Research.

Exhibit 70: Shenzhen Composite Index has traded at an average 40% P/E premium to MSCI World Index over the past 10 years

Source: Bloomberg.

Company Ticker Ratings Mapped Premium/ EPS Target Market Potentialmultiple discount 2017E price price +/-Side

(12m)Accelink (Rmb) 002281.SZ Buy* 26 40% 2.11 76.0 58.7 30%

Fiberhome (Rmb) 600498.SS Neutral 26 0% 1.14 30.0 26.8 12%

ZTE (Rmb) 000063.SZ Neutral 12 40% 17 1.08 16.0 17.7 -10%

ZTE (HK$) 0763.HK Neutral 12 0% 12 1.08 19.0 17.3 10%

Adjustedmultiple

36

26

15

0

5

10

15

20

25

30

35

40

Nov‐05

May‐06

Nov‐06

May‐07

Nov‐07

May‐08

Nov‐08

May‐09

Nov‐09

May‐10

Nov‐10

May‐11

Nov‐11

May‐12

Nov‐12

May‐13

Nov‐13

May‐14

Nov‐14

May‐15

Nov‐15

12‐month forward P/E

SZSE Comp Index MSCI World Index



Exhibit 71: GS/GH CommTech Valuation Comp

* Conviction List

NC – Not Covered


GS/GH Optical Component Comp Sheet


Target Potential

Market cap

EV/ EBITDA

EV/ Sales

FCF yield

Div yield

CROCI

Price Price +/-Side US$ mn 2016E 2016E 2016E 2016E 2016E 2016EAccelink (Rmb) 002281.SZ Buy* 58.7 76.0 30% 1,925 27.9% 43.0% 52.8% 40.3 25.9 3.1 0.4% 0.9% 16.1%Finisar (US$) FNSR Neutral 12.1 14.0 16% 1,285 7.5% 15.8% 20.2% 10.7 4.2 0.7 3.3% 0.0% 11.3%

Lumentum (US$) LITE Neutral 19.8 20.0 1% 1,168 6.2% 19.4% 26.9% 16.0 7.8 1.1 3.2% 0.0% 13.5%

Avago (US$) AVGO Buy 144.8 171.0 18% 39,959 7.7% 1.3% 4.6% 15.4 12.4 5.3 6.4% 1.2% 29.9%

Sumitomo (JPY) 5802.T Neutral 1,758.0 1,800.0 2% 11,367 4.7% 7.9% -6.0% 14.5 6.1 0.6 2.9% 2.0% 6.4%

Oclaro (US$) OCLR US Equit NC 3.6 NA NM 395 8.6% NA NA NM 11.3 0.9 NA NA NM

NeoPhotonics (US$) PTN US Equit NC 9.8 NA NM 398 NA NA NA 18.1 NA 0.9 NA NA 10.8%

II-VI (US$) IIVI US Equity NC 18.8 NA NM 1,146 NA NA NA 16.3 7.2 1.4 9.2% NA 14.8%

Applied Optoelectronics (US$)AAOI US Equit NC 17.8 NA NM 300 18.6% NA 17.4% 12.3 NA 1.3 NA NA 21.7%

IPG Photonics (US$) PGP US Equit NC 92.1 NA NM 4,859 NA NA NA 18.2 9.8 4.2 7.5% 0.0% 42.9%


GS/GH Communications Technology Equipment Comp Sheet


Target Potential

Market cap

EV/ EBITDA

EV/ Sales

FCF yield

Div yield

CROCI

Price Price +/-Side US$ mn 2016E 2016E 2016E 2016E 2016E 2016EZTE (HK$) 0763.HK Neutral 17.3 19.0 10% 9,187 -0.5% 6.4% 9.8% 14.3 8.6 0.8 6.4% 1.8% 12.8%ZTE (Rmb) 000063.SZ Neutral 17.7 16.0 -10% 11,433 -0.5% 6.4% 9.8% 17.8 10.3 0.9 5.2% 1.5% 12.8%Fiberhome (Rmb) 600498.SS Neutral 26.8 30.0 12% 4,392 20.5% 31.8% 32.0% 29.7 18.6 1.6 2.4% 1.5% 21.2%Alcatel-Lucent (EUR) ALUA.PA Buy 3.7 4.8 29% 11,477 4.7% 16.1% 40.6% 13.1 5.0 0.6 8.3% 0.0% 8.9%



Cisco (US$) CSCO Buy* 27.0 35.0 30% 136,800 3.4% 3.7% 5.7% 11.5 6.1 1.9 8.1% 3.3% 29.0%



Arris (US$) ARRS Buy 32.0 39.0 22% 4,692 31.1% 43.2% 36.5% 9.9 5.5 0.8 10.7% 0.0% 22.8%




2015E-2017E CAGR

Revenue/EBITDA/EPS P/E

P/E

2015E-2017E CAGR

Revenue/EBITDA/EPS



Accelink (002281.SZ): Market share/margin gain; initiate at Buy (CL)

Source of opportunity Accelink is China’s leading optical component provider with highly integrated supply chain capability (from upstream chip development to downstream subsystem production), a comprehensive product portfolio across both active and passive components, and strong independent R&D capability. We believe the current market price does not adequately reflect Accelink’s

stronger-than-peers revenue growth as well as margin improvement driven by ongoing mix shift to more high-end products, leading to historical high EPS growth in 2016E. We initiate coverage on Accelink with Buy and add the stock to our Conviction List. Our 12-month target price of Rmb76.00 implies 30% potential upside.

Catalyst We expect global optical component market growth to accelerate in 2016, driven by both metro/broadband network upgrade at telcos and strong

demand from cloud service providers. Ovum forecasts global optical communications TAM CAGR of 12% over 2014-2019. In 2014, Accelink ranked No.5 among global optical component suppliers with 4.7% market share, up from No.7 in 2013. We expect Accelink to continue to gain market share over the next three years to 6.8% in 2017E, with revenue

growth of 28% (CAGR over 2015E-2017E) vs. industry average of 12%. Gross profit margin should continue to improve from 22.6% in 2014 to

26.9% in 2017E, driven by Accelink’s strong position in high speed (10G/40G) optical transceiver modules (c.50% of total revenue). High speed products currently account for 20%-30% of Accelink’s revenue, and have c.30% gross margin vs. c.20% for low-speed products. Accelink aims to launch its own 100G

(25Gx4) products before 2017, which we believe will drive strong revenue growth and improving gross margin for the company. On the Datacom side, BAT (Baidu/Alibaba/Tencent) began large-scale deployment of optical-module solutions in their data centers in 2014. Accelink generated Rmb100mn revenue from BAT’s data center demand in 2014, and expects 100% yoy growth over the next few years. Near-term catalysts include: (1) China telcos’ 2016E

capex guidance at 2015 annual result meetings; (2) news on BAT’s data center expansion plans; (3) Accelink’s 4Q15 result (likely March, 2016).

Valuation We use a P/E-based valuation framework, consisting of a matrix of global CommTech industry peer multiples in the US, Europe, and Japan to derive our Rmb76.00 12-month target price. We use the matrix to derive the corresponding target P/E multiple for our China CommTech coverage stocks

(26X for Accelink) and apply a 40% premium for Shenzhen stock exchange listed companies, in line with SZ Comp Index’s historical premium to the MSCI World Index. Our TP is therefore based on 36X P/E applied to 2017E EPS.

Key risks (1) Market fragmentation and intensified pricing competition especially at the low end; (2) Delayed 100G product launch; (3) Lumpiness in

Telecom/Datacom capex spend and customer concentration.

Growth

Returns *

Multiple

Volatility Volatility

Multiple

Returns *

Growth

Investment Profile

Low High

Percentile 20th 40th 60th 80th 100th

* Returns = Return on Capital For a complete description of the investment

profile measures please refer to the

disclosure section of this document.

Accelink Technologies (002281.SZ)

Asia Pacific Technology Peer Group Average

Key data Current

Price (Rmb) 58.67

12 month price target (Rmb) 76.00

Market cap (Rmb mn / US$ mn) 12,314.2 / 1,923.5

Foreign ownership (%) --

12/14 12/15E 12/16E 12/17E

EPS (Rmb) New 0.71 0.91 1.46 2.11

EPS revision (%) -- -- -- --

EPS growth (%) (19.4) 27.9 60.8 45.2

EPS (dil) (Rmb) New 0.71 0.91 1.46 2.11

P/E (X) 49.8 64.8 40.3 27.7

P/B (X) 3.0 5.0 4.6 4.1

EV/EBITDA (X) 26.9 38.0 25.9 18.6

Dividend yield (%) 1.5 0.9 0.9 0.9

ROE (%) 7.1 7.9 12.0 15.7

CROCI (%) 7.3 12.4 16.1 19.3

1,000

1,300

1,600

1,900

2,200

2,500

2,800

3,100

3,400

3,700

4,000

25

30

35

40

45

50

55

60

65

70

75

Dec-14 Mar-15 Jun-15 Sep-15

Price performance chart

Accelink Technologies (L) Shenzhen A Index (R)

Share price performance (%) 3 month 6 month 12 month

Absolute 80.6 (13.1) 34.6

Rel. to Shenzhen A Index 35.3 17.7 (10.8)

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 12/04/2015 close.



Accelink Technologies: Summary financials

Profit model (Rmb mn) 12/14 12/15E 12/16E 12/17E Balance sheet (Rmb mn) 12/14 12/15E 12/16E 12/17E

Total revenue 2,433.1 2,963.2 3,851.0 4,847.2 Cash & equivalents 718.7 670.2 608.2 629.7

Cost of goods sold (1,883.4) (2,238.3) (2,851.7) (3,543.0) Accounts receivable 896.8 1,093.4 1,421.7 1,790.0

SG&A (153.5) (211.2) (265.2) (313.1) Inventory 772.5 968.5 1,266.0 1,592.9

R&D (241.6) (296.3) (385.1) (484.7) Other current assets 517.5 517.5 517.5 517.5

Other operating profit/(expense) 0.0 0.0 0.0 0.0 Total current assets 2,905.6 3,249.6 3,813.5 4,530.2

ESO expense -- -- -- -- Net PP&E 609.7 648.0 708.7 790.9

EBITDA 242.4 308.3 453.6 630.0 Net intangibles 48.0 41.8 36.4 31.7

Depreciation & amortization (87.8) (90.9) (104.5) (123.6) Total investments 9.6 9.6 9.6 9.6

EBIT 154.6 217.4 349.1 506.4 Other long-term assets 12.9 12.9 12.9 12.9

Interest income 3.7 5.1 4.8 4.3 Total assets 3,585.8 3,961.9 4,581.1 5,375.2

Interest expense 0.0 0.0 0.0 0.0

Income/(loss) from uncons. subs. 0.0 0.0 0.0 0.0 Accounts payable 1,017.0 1,307.9 1,729.6 2,188.2

Others (6.4) (6.4) (6.4) (6.4) Short-term debt 60.2 60.2 60.2 60.2

Pretax profits 151.9 216.0 347.4 504.3 Other current liabilities 58.8 62.1 62.1 62.1

Income tax (7.8) (25.9) (41.7) (60.5) Total current liabilities 1,136.0 1,430.2 1,851.9 2,310.5

Minorities 0.0 0.0 0.0 0.0 Long-term debt 0.0 0.0 0.0 0.0

Net income pre-preferred dividends 144.1 190.1 305.7 443.8 Other long-term liabilities 73.1 73.1 73.1 73.1

Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 73.1 73.1 73.1 73.1

Net income (pre-exceptionals) 144.1 190.1 305.7 443.8 Total liabilities 1,209.0 1,503.3 1,925.0 2,383.6

Post-tax exceptionals 0.0 0.0 0.0 0.0

Net income 144.1 190.1 305.7 443.8 Preferred shares 0.0 0.0 0.0 0.0

Total common equity 2,376.7 2,458.6 2,656.1 2,991.6

EPS (basic, pre-except) (Rmb) 0.71 0.91 1.46 2.11 Minority interest 0.0 0.0 0.0 0.0

EPS (basic, post-except) (Rmb) 0.71 0.91 1.46 2.11

EPS (diluted, post-except) (Rmb) 0.71 0.91 1.46 2.11 Total liabilities & equity 3,585.8 3,961.9 4,581.1 5,375.2

EPS excl. ESO expense (basic) (Rmb) -- -- -- --

EPS excl. ESO expense (dil.) (Rmb) -- -- -- -- BVPS (Rmb) 11.68 11.71 12.65 14.25

DPS (Rmb) 0.52 0.52 0.52 0.52

Dividend payout ratio (%) 72.8 56.9 35.4 24.4

Free cash flow yield (%) 0.3 0.5 0.4 1.1

Ratios 12/14 12/15E 12/16E 12/17E

Growth & margins (%) 12/14 12/15E 12/16E 12/17E CROCI (%) 7.3 12.4 16.1 19.3

Sales growth 14.1 21.8 30.0 25.9 ROE (%) 7.1 7.9 12.0 15.7

EBITDA growth 40.8 27.2 47.1 38.9 ROA (%) 4.6 5.0 7.2 8.9

EBIT growth 61.7 40.6 60.6 45.1 ROACE (%) 9.5 10.4 15.2 19.4

Net income growth (11.9) 31.9 60.8 45.2 Inventory days 133.9 142.0 143.0 147.3

EPS growth (19.4) 27.9 60.8 45.2 Receivables days 126.1 122.6 119.2 120.9

Gross margin 22.6 24.5 26.0 26.9 Payable days 171.4 189.6 194.4 201.8

EBITDA margin 10.0 10.4 11.8 13.0 Net debt/equity (%) (27.7) (24.8) (20.6) (19.0)

EBIT margin 6.4 7.3 9.1 10.4 Interest cover - EBIT (X) NM NM NM NM

Cash flow statement (Rmb mn) 12/14 12/15E 12/16E 12/17E Valuation 12/14 12/15E 12/16E 12/17E

Net income pre-preferred dividends 144.1 190.1 305.7 443.8

D&A add-back 87.8 90.9 104.5 123.6 P/E (analyst) (X) 49.8 64.8 40.3 27.7

Minorities interests add-back 0.0 0.0 0.0 0.0 P/B (X) 3.0 5.0 4.6 4.1

Net (inc)/dec working capital (11.5) (101.6) (204.2) (236.5) EV/EBITDA (X) 26.9 38.0 25.9 18.6

Other operating cash flow (94.8) 0.0 0.0 0.0 EV/GCI (X) 3.1 5.0 4.3 3.7

Cash flow from operations 125.6 179.4 206.0 330.9 Dividend yield (%) 1.5 0.9 0.9 0.9

Capital expenditures (101.0) (123.0) (159.8) (201.1)

Acquisitions 0.0 0.0 0.0 0.0

Divestitures 0.3 0.0 0.0 0.0

Others (440.6) 0.0 0.0 0.0

Cash flow from investments (541.3) (123.0) (159.8) (201.1)

Dividends paid (common & pref) (46.9) (104.9) (108.2) (108.2)

Inc/(dec) in debt (31.0) 0.0 0.0 0.0

Common stock issuance (repurchase) 701.0 0.0 0.0 0.0

Other financing cash flows (7.4) 0.0 0.0 0.0

Cash flow from financing 615.7 (104.9) (108.2) (108.2) Note: Last actual year may include reported and estimated data.

Total cash flow 200.0 (48.5) (62.0) 21.5 Source: Company data, Goldman Sachs Research estimates.



Business overview Accelink is China’s largest optical component provider by revenue size and has the most integrated supply chain capability (from upstream chip development to downstream subsystem production) and a broad range of product portfolios across both active and passive (see glossary)

components for application in both the Telecom and Datacom segments. Its products are sold to over 40 CommTech equipment makers in over 20 markets around the world. Main products are optical transceivers (c.50% of revenue), optical amplifiers (c.15% of revenue), and WDMs (c.15% of revenue).

Accelink has an independent research and development system and inherited over 30 years of core technology and human resources from the former Ministry of Posts and Telecommunications

Institute of Solid State Devices. The company owns core proprietary technologies including fiber optic amplifiers, subsystems, micro-optical passive components, fiber optics components, and planar integrated optical waveguide devices. Accelink has multiple-level R&D capabilities from parts, basic devices to module and subsystems. In the optical fiber amplifier and subsystem fields, Accelink began comprehensive research and development in the early 1990s and has accumulated a solid technical foundation; it was the first in China to achieve EDFA (Erbium

Doped Fiber Amplifier) and Raman amplifier commercialization. In passive devices and optical integrated products, Accelink was the first in China to develop AWG (array waveguide grating) devices with independent intellectual property (IP) right, reaching international commercialization level of similar products. In 2014, Accelink had a total of 128 patent applications and 72 patents granted. Patent application grew over 20% yoy.

Exhibit 72: Accelink product portfolio

*Note: see glossary for details


Optical amplifiers

Name Function ApplicationProduct

EDFA amplifier, RAMAN

amplifier, hybrid amplifier, high

power amplifier

SFP+, XFP, CFP, 40G transponder,

ITLA, ICR, AOC

WSS, OSW, VMUX, OPM

WDM, interleaver, splitter,

isolator, circulator, tunable filter

EPON, GPON, NGPON, TWDM

PON, ONT BOX

Telecom transmission and access

network

FTTX access network


network

Passive components

Access modules

An optical amplifier is a device that amplifies an optical

signal directly, without the need to first convert it to an

electrical signal.

A transceiver is a device comprising both a transmitter

and a receiver which are combined and share common

circuitry or a single housing.

Optical components that enable the network to be

flexible and reconfigurable.

Optical components that could work in a circuit without

adding power when there is a signal

Provides FTTX access solutions

Telecom backbone network, access

network, and enterprise network


network, data center, enterprise

network

Transceivers/Data

modules

Intelligent

components



Exhibit 73: Accelink’s product portfolio comparison with global peers (2015)

*Note: green denotes which products are manufactured.

Source: Finisar.

According to Ovum, Accelink had 4.7% revenue market share in the global optical component market in 2014. Major international competitors include Finisar, Lumentum, Avago, Sumitomo etc., these companies have a comprehensive suite of product lines and can compete with Accelink in a number of areas; we estimate Accelink has c.20% domestic market share in 2014, local

competitors include Hisense, Wuxi Zhongxing and O-Net Communications (passive components) etc.

On low-speed (below 10G) products, Accelink focuses on increasing market share,

and offers competitive pricing among its domestic competitors;

On high-speed (10G and above) products, Accelink is the only domestic supplier

with an independent R&D, and has distinct cost advantage compared to international

vendors, taking up 60% of domestic market share and 30% overseas market share in 2015, according to management;

On 100G (25Gx4) products, which Accelink expects commercial use in two years, we

believe its technology leadership among domestic vendors and cost advantage over international vendors will become more apparent, and should induce strong revenue growth and improving gross margin for the company.

Optical component market outlook We believe the global optical component market will accelerate from 2015, driven by both metro/broadband network upgrade at telcos and the rise of data centers. Ovum forecasts global

optical communications TAM CAGR of 12% over 2014-2019, of which:

Wide Area Network (WAN) (11% CAGR): This segment includes components in

telecom carriers’ core and metro networks, which continues to be the largest segment and is forecasted by Ovum to grow at a compound annual growth rate (CAGR) of 11% to US$7bn in 2019. Demand for 100G components and modules is a big driver for growth in WAN. Ovum expects strong demand for pluggable coherent transceivers in 2015.

Datacom (16% CAGR): Datacom is expected to be the fastest-growing segment,

expanding at a 16% CAGR to reach US$4.2bn in 2019. The market is led by demand for 10G and 40G components in the early years and then 100G in the later years driven by the availability of server ports supporting data rates greater than 10G.

Access (-2% CAGR): Access is forecasted to decline at a 2% CAGR to US$1.1bn in

2019. Access includes CATV, FTTx and transceivers for the fiber-to-the-antenna

application. The decline will be driven by the FTTx application, where volumes are nearly

Fiber

ChannelEthernet

Optical

EnginesInfini Band

Active

Cables

SONET/

SDH

CWDM/

DWDMWireless FTTX WSS Passives

Optical

AmplifiersCoherent

High Speed

Components

Finisar

Avago

Sumitomo/Excelight

JDSU/Lumentum

Oclaro

Oplink

Fujitsu

Source Photonics

NeoPhotonics

Accelink

Datacom Telecom

Company



constant through the forecast period but price declines are projected to pull down revenues.

Exhibit 74: Ovum forecasts global optical components industry revenue CAGR of 12% (2014-19)…

Exhibit 75: … driven by Datacom (16% CAGR) and WAN (11% CAGR), while Access declines (-2% CAGR)

Source: Ovum.

Source: Ovum.

In 2014, Accelink ranked No.5 among global optical component suppliers with 4.7% market share, up from No.7 in 2013 with 4.5% market share. We believe Accelink will continue to gain market

share over the next three years to 6.8% in 2017E, with above industry revenue growth of 28% (CAGR over 2015E-2017E). Gross profit margin should continue to improve from 22.6% in 2014 to 26.9% in 2017E, driven by Accelink’s favorable position in high speed (10G/40G) products with higher margins among domestic players. High speed products currently account for 20%-30% of Accelink’s revenue, and we expect this proportion will continue to rise.

Exhibit 76: Accelink ranked No.5 among global optical component suppliers with 4.7% market share in 2014

Exhibit 77: We believe Accelink will continue to gain market share over the next three years to 6.8% in 2017E

Source: Ovum.

Source: Ovum, Gao Hua Securities Research.

‐

2,000

4,000

6,000

8,000

10,000

12,000

2014 2015 2016 2017 2018 2019

Optical component market size(US$ mn)

Vendor2014

share

2013

share % change 2014 rank 2013 rank

Finisar 16.7% 15.9% 0.8% 1 1

JDSU 8.4% 8.6% ‐0.2% 2 3

Avago 7.3% 8.7% ‐1.3% 3 2

Sumitomo 6.0% 6.8% ‐0.7% 4 5

Accelink 4.7% 4.5% 0.2% 5 7

Oclaro 4.6% 6.8% ‐2.2% 6 4

Fijitsu 4.1% 4.8% ‐0.7% 7 6

NeoPhotonics 3.9% 3.8% 0.1% 8 8

II‐VI 3.3% 1.9% 1.4% 9 11

Source Photonics 3.0% 2.9% 0.1% 10 10

4.5% 4.7%5.0%

5.8%

6.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2013 2014 2015E 2016E 2017E

Accelink revenue market share (US$)



Exhibit 78: Accelink’s revenue growth vs. peers

Exhibit 79: Accelink’s gross margin vs. peers



Exhibit 80: Accelink’s EBIT margin vs. peers

Exhibit 81: Government grants impact Accelink’s EBIT margin



Exhibit 82: Accelink’s revenue breakdown (2014)

Exhibit 83: Accelink’s revenue size and gross margin trend



‐10%

0%

10%

20%

30%

40%


Finisar Lumentum Accelink

20%

25%

30%

35%

40%Gross margin %


0%

5%

10%

15%

20%EBIT margin %


4%

6%

8%

10%

12%

14%

16%

18%

2009 2010 2011 2012 2013 2014

Accelink government grants impact on EBIT margin

EBIT margin EBIT margin (incl Government grants)

59%

36%

6%

Transport

Access and data

Others

73%

27%

Domestic

Overseas

20.8%

21.8%

22.6%

24.5%

26.0%

26.9%

20.0%

21.0%

22.0%

23.0%

24.0%

25.0%

26.0%

27.0%

28.0%

-

1,000

2,000

3,000

4,000

5,000

6,000

2012 2013 2014 2015E 2016E 2017E

Revenue (RMB mn) Gross margin (RHS)



Exhibit 84: Revenue yoy growth by business segment

Exhibit 85: Gross margin by business segment



Earnings: We are 9% ahead of 2017E consensus EPS estimates We are 9% ahead of consensus EPS in 2017E as we believe consensus has not factored in the

margin expansion upside at Accelink driven by the product mix shifting to more high speed products over the next two years. High speed products currently account for 20%-30% of Accelink’s revenue, and have a c.30% gross margin vs. c.20% for low speed products. Accelink aims to launch its own 100G (25Gx4) products before 2017, which we believe will drive strong revenue growth and improving gross margin for the company.

We note that our revenue forecasts are 6-12% below Wind consensus, as we think that

consensus’ 2015 revenue forecast is too aggressive; Accelink’s accumulated 1-3Q15 revenue growth came in at 20% yoy. Consensus 2015E revenue forecast would imply 61% yoy growth in 4Q15, vs. 4% yoy in 4Q14 and -61% yoy in 4Q13. Based on our forecasts, the implied 4Q15 growth rate is 26%, which we think is much more rational.

In the next six to 12 months, we expect to see consensus revenue become more realistic with the potential for EPS upgrades to factor in the margin upside.

Exhibit 86: We are 9% ahead of 2017E consensus EPS estimates

Source: Company data, Wind, Gao Hua Securities Research.

8%17%

25%31%

25%

-12%

7% 10%16% 13%

147%

52%

70%

85%

68%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

2013 2014 2015E 2016E 2017E

Transport Access and data Others

25.7% 25.9%28.0% 29.0% 29.5%

15.7% 15.6% 16.0% 17.0% 17.5%

28.7%29.9%

31.0% 32.0% 32.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2013 2014 2015E 2016E 2017E

Transport Access and data Others

(RMB mn) 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E

Accelink

Revenue 2,433 2,963 3,851 4,847 2,433 3,157 4,110 5,509 0% ‐6% ‐6% ‐12%

yoy % 14% 22% 30% 26% 14% 30% 30% 34%

Net income 144 190 306 444 144 208 302 407 0% ‐9% 1% 9%

yoy % ‐12% 32% 61% 45% ‐12% 44% 45% 35%

EPS (RMB) 0.71 0.91 1.46 2.11 0.71 0.99 1.44 1.94 0% ‐9% 1% 9%

yoy % ‐19% 28% 61% 45% ‐19% 39% 45% 35%

GSE vs ConsWind ConsensusGSE



12-month target price of Rmb76.00 implies 30% potential upside We forecast 2015E-2017E revenue CAGR of 28% and EPS CAGR of 53% for Accelink. Our 12-month target price of Rmb76.00 (based on 36X 2017E EPS) implies 30% potential upside.

Our matrix valuation framework, which takes into account change in EPS growth and change in

CROCI across global CommTech peers (2004-2014) sees Accelink in the top right corner, corresponding to a 26X P/E multiple. We then apply a 40% premium, in line with SZ Comp Index’s historical premium to the MSCI World Index over the last 10 years.

We believe the current market price has not adequately accounted for Accelink’s potential revenue growth as well as margin improvement with more high-end products in the mix. The stock is currently trading in line with its 12-month forward average P/E, despite having historical

high EPS growth in 2016E. We initiate coverage of the stock with Buy, and add it to our Conviction list.

Exhibit 87: Matrix valuation framework: Accelink fits into the top right corner, with a 26X P/E multiple

Source: Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Exhibit 88: Accelink’s 12-month target price of Rmb76.00 implies 30% potential upside

* Conviction list


17X NA 26XAccelink,

Fiberhome,26X

15X 19X 19X

12X NA 17X ZTE, 12X

Ch

an

ge i

n E

PS

gro

wth

(0

4-1

4 a

vera

ge)

-5%

5%

15%+

-1.5% -0.5% 0.5% 1.5%+

-15%


Ch

an

ge i

n E

PS

gro

wth

(1

4-1

7E

av

era

ge)


-5%

5%

15%+

-1.5% -0.5% 0.5% 1.5%+

-15%


(12m)Accelink (Rmb) 002281.SZ Buy* 26 40% 2.11 76.0 58.7 30%Fiberhome (Rmb) 600498.SS Neutral 26 0% 1.14 30.0 26.8 12%

ZTE (Rmb) 000063.SZ Neutral 12 40% 17 1.08 16.0 17.7 -10%

ZTE (HK$) 0763.HK Neutral 12 0% 12 1.08 19.0 17.3 10%

Adjustedmultiple

36 26

15



Exhibit 89: Accelink is trading in line with its 12-month forward average P/E despite historical high EPS growth

Exhibit 90: Accelink 12-month forward P/E band

Source: Bloomberg, Company data, Gao Hua Securities Research.


Exhibit 91: GS/GH Optical Component Valuation Comp

* Conviction List

NC – Not Covered


‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

70%

10.0x

20.0x

30.0x

40.0x

50.0x

60.0x

70.0x

Dec‐09 Dec‐10 Dec‐11 Dec‐12 Dec‐13 Dec‐14 Dec‐15

Accelink 12‐month forward P/EP/E EPS yoy

‐

20.0

40.0

60.0

80.0

100.0

120.0

Jun‐09

Dec‐09

Jun‐10

Dec‐10

Jun‐11

Dec‐11

Jun‐12

Dec‐12

Jun‐13

Dec‐13

Jun‐14

Dec‐14

Jun‐15

Dec‐15

Jun‐16

Dec‐16

Accelink

30.1x 35.2x 40.3x 45.4x 50.5x Price


Target Potential

Market cap

EV/ EBITDA

EV/ Sales

FCF yield

Div yield

CROCI

Price Price +/-Side US$ mn 2016E 2016E 2016E 2016E 2016E 2016EAccelink (Rmb) 002281.SZ Buy* 58.7 76.0 30% 1,925 27.9% 43.0% 52.8% 40.3x 25.9x 3.1x 0.4% 0.9% 16.1%Finisar (US$) FNSR Neutral 12.1 14.0 16% 1,285 7.5% 15.8% 20.2% 10.7x 4.2x 0.7x 3.3% 0.0% 11.3%

Lumentum (US$) LITE Neutral 19.8 20.0 1% 1,168 6.2% 19.4% 26.9% 16.0x 7.8x 1.1x 3.2% 0.0% 13.5%

Avago (US$) AVGO Buy 144.8 171.0 18% 39,959 7.7% 1.3% 4.6% 15.4x 12.4x 5.3x 6.4% 1.2% 29.9%

Sumitomo (JPY) 5802.T Neutral 1,758.0 1,800.0 2% 11,367 4.7% 7.9% -6.0% 14.5x 6.1x 0.6x 2.9% 2.0% 6.4%

Oclaro (US$) OCLR US Equit NC 3.6 NA NM 395 8.6% NA NA NM 11.3x 0.9x NA NA NM

NeoPhotonics (US$) PTN US Equit NC 9.8 NA NM 398 NA NA NA 18.1x NA 0.9x NA NA 10.8%

II-VI (US$) IIVI US Equity NC 18.8 NA NM 1,146 NA NA NA 16.3x 7.2x 1.4x 9.2% NA 14.8%

Applied Optoelectronics (US$)AAOI US Equit NC 17.8 NA NM 300 18.6% NA 17.4% 12.3x NA 1.3x NA NA 21.7%

IPG Photonics (US$) PGP US Equit NC 92.1 NA NM 4,859 NA NA NA 18.2x 9.8x 4.2x 7.5% 0.0% 42.9%

Average 11.6% 17.5% 19.3% 18.0x 10.6x 2.0x 4.7% 0.7% 18.6%Median 7.7% 15.8% 18.8% 16.0x 8.8x 1.2x 3.3% 0.4% 14.8%STD 8.5% 15.9% 20.2% 8.7x 6.8x 1.6x 3.1% 0.8% 11.4%

P/ERevenue/EBITDA/EPS

2015E-2017E CAGR



Exhibit 92: Accelink revenue and margin drivers


Key risks 1. Further market fragmentation and intensified pricing competition especially at the

low end

The optical component market has been historically quite fragmented and the industry HHI based on revenue market share has been declining over the last five years as the long tail is getting longer. In addition to the annual component prices decline of about 15% which occurs

every January, pricing competition remains intense, especially at the low end (below 10G products). Accelink still has the majority of its revenue from the low-speed segment, and plans to gain further market share, as a result it is subject to margin pressure.

(RMB mn) 2013 2014 2015E 2016E 2017E 1H13 2H13 1H14 2H14 1H15 2H15ETransport 1,197 1,405 1,756 2,300 2,870 800 397 690 715 762 994 yoy % 8% 17% 25% 31% 25% ‐14% 80% 10% 39%hoh % ‐50% 74% 4% 7% 30%

COGS (890) (1,040) (1,264) (1,633) (2,024) (634) (255) (506) (534) (526) (738) Gross profit 308 364 492 667 847 166 142 184 180 236 256 Gross margin % 25.7% 25.9% 28.0% 29.0% 29.5% 20.7% 35.7% 26.7% 25.2% 30.9% 25.8%

Access and data 796 852 937 1,087 1,226 169 626 437 415 615 322 yoy % ‐12% 7% 10% 16% 13% 158% ‐34% 41% ‐22%hoh % 270% ‐30% ‐5% 48% ‐48%

COGS (671) (719) (787) (902) (1,012) (153) (518) (387) (332) (504) (284) Gross profit 125 133 150 185 215 16 109 50 82 111 39 Gross margin % 15.7% 15.6% 16.0% 17.0% 17.5% 9.3% 17.4% 11.5% 19.9% 18.1% 12.0%

Others 88 134 228 421 708 72 16 59 75 67 161 yoy % 147% 52% 70% 85% 68% ‐18% 360% 14% 114%hoh % ‐77% 261% 27% ‐11% 139%

COGS (63) (94) (157) (287) (478) (49) (14) (45) (49) (50) (107) Gross profit 25 40 71 135 230 23 3 14 26 17 54 Gross margin % 28.7% 29.9% 31.0% 32.0% 32.5% 31.3% 16.8% 23.8% 34.7% 24.8% 33.6%

Core revenue 2,081 2,391 2,921 3,809 4,805 1,041 1,040 1,186 1,204 1,444 1,477 yoy % 1% 15% 22% 30% 26% 147% ‐36% 14% 16% 22% 23%

COGS (1,623) (1,854) (2,208) (2,822) (3,513) (837) (787) (938) (916) (1,081) (1,128) Gross profit 458 537 712 987 1,291 204 254 248 288 363 349 Gross margin % 22.0% 22.5% 24.4% 25.9% 26.9% 19.6% 24.4% 20.9% 24.0% 25.2% 23.6%

Other revenue 51 43 43 43 43 19 33 41 1 18 24 yoy % ‐2% ‐17% 0% 0% 0% ‐39% 49% 119% ‐97% ‐56% 2069%

COGS (44) (30) (30) (30) (30) (18) (26) (24) (6) (9) (21) Gross profit 8 13 13 13 13 1 6 18 (5) 9 3 Gross margin % 14.6% 29.9% 29.9% 29.9% 29.9% 6.0% 19.6% 42.7% ‐446.4% 51.8% 13.3%

Total revenue 2,133 2,433 2,963 3,851 4,847 1,060 1,073 1,228 1,205 1,462 1,501 yoy % 1% 14% 22% 30% 26% 135% ‐35% 16% 12% 19% 25%

COGS (1,667) (1,883) (2,238) (2,852) (3,543) (855) (813) (961) (922) (1,089) (1,149) Gross profit 465 550 725 999 1,304 205 260 266 284 373 352 Gross margin % 21.8% 22.6% 24.5% 26.0% 26.9% 19.4% 24.2% 21.7% 23.5% 25.5% 23.4%



Exhibit 93: Competition intensity in the optical component market has been increasing

Source: Ovum, Gao Hua Securities Research.

2. Delayed 100G product launch

Accelink plans to launch its own 100G (25Gx4) products for commercial use in two years. The successful launch and usage will depend on Accelink developing its own high-speed chips. Currently, all low-speed chips are made in-house, 30%-40% 10G chips are in-house, while all 25G chips are purchased from other industry peers.

3. Lumpiness in Telecom/Datacom capex spend and customer concentration

Both telecom network capacity expansion projects and datacenter intra/inter-connect spend

can be lumpy. The delay of one or more projects at the same time might have a material impact on Accelink’s revenue. In 2014, the top five of Accelink’s customers contributed 52.45% of its total revenue, out of which 28.85% was from its largest customer.

7.0%

6.8%

6.3%

6.1%

5.4%

5.6%

5.8%

6.0%

6.2%

6.4%

6.6%

6.8%

7.0%

7.2%

1Q11 3Q11 4Q13 4Q14

Optical component industry Herfindahl Index based on revenue market share



ZTE (0763.HK/000063.SZ): Slowing growth on telco capex; Neutral

Investment view ZTE is the second largest communications technology equipment company in China with 15% market share, behind Huawei (42%). It provides products and services to telecom network carriers, data center operators, government and enterprise customers, as well as retail consumers around the world. The business is relatively leveraged (62%) to the decelerating telco capex cycle and

we believe the current market price fairly reflects ZTE’s fundamentals, with A/H shares trading close to their 10 year average P/E; retain Neutral on both A share and H share. With this report, we transfer coverage to Tina Hou from Lingling Hu.

Core drivers of growth We forecast 2015E revenue growth of 15% yoy, mainly driven by total China telco capex growth of 9% yoy. However, we expect growth to slow to 3%/-4%

yoy in 2016E/17E as our China telco analyst, Donald Lu expects capex to peak in 2015 and decline by 7%/17% in the next two years (without factoring in China Tower). We forecast 2015E-17E revenue/EPS CAGR of -1%/+10% for ZTE. (1) Carrier network accounted for 62% of total revenue in 1H15. As

ZTE’s revenue is highly correlated with telco capex in China, the company will need to find new revenue streams either in the overseas carriers’ market or

domestic Datacom market to drive its growth until CM/CT/CU starts investing in 5G in about five years’ time. (2) Handsets sales, which represented 22% of

total revenue in 1H15, was also weak -4% yoy (Domestic -30%, Overseas +6%-7%). ZTE faces strong competition from both international heavyweights such as Apple and Samsung as well as domestic leaders such as Huawei. Next year, ZTE’s focus will be on ASEAN and Africa emerging markets to potentially benefit from strong growth in smartphone adoption. (3) Government and Enterprise is still a small portion of ZTE’s total revenue, contributing 16% of

total revenue in 1H15. ZTE believes a new revenue growth driver lies in its enterprise network business, in which it sells routers, servers, and switches to large organizations in China. In February this year, various media (Fortune.com, Feb 26, 2015) reported that a number of US firms, including

Cisco, were removed from a Chinese government approved purchase list. ZTE’s enterprise business grew 45% yoy over 1-3Q15, and 65% yoy alone in the third quarter, according to management.

Valuation We lower 2015E net income estimates by 7% on weak handset sales, but raise 2016E/17E net income 4%/9% on improving margin trends. We adjust ZTE’s share count post the company’s bonus share issuance. Our 2015E/16E/17E

EPS becomes Rmb0.89/0.99/1.08. Our new 12-month target prices of Rmb16.00 for A share and HK$19.00 for H share are now both based on 2017E P/E of 15X, derived from our P/E matrix of global CommTech peers. Our previous 12-month TPs of Rmb13.50 for A and HK$16.50 for H were based on a 13X NTM P/E valuation methodology.

Key risks (1) Higher/lower-than-expected telco capex spend; (2) Better/worse-than-

expected handset sales; (3) More/less-than-expected competition intensity in domestic and overseas markets.

INVESTMENT LIST MEMBERSHIP

A i P ifi B li

Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





ZTE Corp. (H) (0763.HK)


Key data Current

Price (HK$) 17.26

12 month price target (HK$) 19.00

000063.SZ Price (Rmb) 17.73

000063.SZ 12 month price target (Rmb) 16.00

Market cap (HK$ mn / US$ mn) 71,198.4 / 9,186.8


12/14 12/15E 12/16E 12/17E

EPS (Rmb) 0.77 0.89 0.99 1.08

EPS growth (%) 94.0 16.8 11.1 8.6

EPS (diluted) (Rmb) 0.77 0.85 0.95 1.04

EPS (basic pre-ex) (Rmb) 0.77 0.89 0.99 1.08

P/E (X) 14.2 15.9 14.3 13.2

P/B (X) 1.5 2.1 1.9 1.8

EV/EBITDA (X) 8.2 9.5 8.5 7.9

Dividend yield (%) 1.8 1.6 1.8 2.0

ROE (%) 11.1 13.4 13.6 13.4

CROCI (%) 16.7 12.8 12.8 12.8

11,000

12,000

13,000

14,000

15,000

16,000

17,000

12

14

16

18

20

22

24



ZTE Corp. (H) (L) MSCI Hong Kong (R)


Absolute 11.5 (26.1) 13.8

Rel. to MSCI Hong Kong 4.5 (13.3) 18.7




ZTE Corp. (H): Summary financials


Total revenue 81,471.3 93,645.3 96,198.2 92,701.7 Cash & equivalents 17,230.1 8,161.0 9,939.6 13,516.2

Cost of goods sold (57,759.0) (65,341.6) (66,736.9) (64,101.8) Accounts receivable 48,316.8 55,536.6 57,050.6 54,977.0

SG&A (12,529.7) (13,685.5) (14,009.4) (13,415.8) Inventory 19,592.3 22,164.4 22,637.7 21,743.8

R&D (9,008.5) (10,838.3) (11,089.1) (10,567.4) Other current assets 1,151.2 1,151.2 1,151.2 1,151.2

Other operating profit/(expense) 2,545.3 2,157.5 2,100.0 2,100.0 Total current assets 86,290.4 87,013.2 90,779.1 91,388.2

ESO expense -- -- -- -- Net PP&E 7,664.4 8,128.9 8,563.9 9,023.0

EBITDA 6,545.1 7,763.2 8,460.4 8,794.8 Net intangibles 3,741.5 3,938.6 4,036.4 4,111.6

Depreciation & amortization (1,825.8) (1,825.8) (1,997.6) (2,078.0) Total investments 4,205.4 4,205.4 4,205.4 4,205.4

EBIT 4,719.3 5,937.4 6,462.8 6,716.8 Other long-term assets 8,352.8 8,352.8 8,352.8 8,352.8


Interest expense (1,561.7) (1,561.7) (1,357.9) (1,164.9)

Income/(loss) from uncons. subs. (53.0) (53.0) (53.0) (53.0) Accounts payable 49,049.5 55,488.7 56,673.6 54,435.9

Others 0.0 0.0 0.0 0.0 Short-term debt 20,347.8 13,030.8 13,030.8 13,030.8

Pretax profits 3,538.2 4,694.1 5,227.8 5,713.0 Other current liabilities 567.9 796.8 903.4 1,002.2

Income tax (810.5) (1,075.3) (1,197.5) (1,308.7) Total current liabilities 69,965.1 69,316.4 70,607.9 68,468.8

Minorities (94.2) (108.2) (111.2) (107.1) Long-term debt 11,745.4 11,076.1 11,076.1 11,076.1

Net income pre-preferred dividends 2,633.6 3,510.6 3,919.1 4,297.2 Other long-term liabilities 2,251.6 2,251.6 2,251.6 2,251.6

Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 13,997.0 13,327.7 13,327.7 13,327.7

Net income (pre-exceptionals) 2,633.6 3,510.6 3,919.1 4,297.2 Total liabilities 83,962.1 82,644.0 83,935.6 81,796.5


Net income 2,633.6 3,510.6 3,919.1 4,297.2 Preferred shares 0.0 0.0 0.0 0.0


EPS (basic, pre-except) (Rmb) 0.77 0.89 0.99 1.08 Minority interest 1,413.9 1,522.2 1,633.3 1,740.5





DPS (Rmb) 0.20 0.23 0.26 0.28



Ratios 12/14 12/15E 12/16E 12/17E


Sales growth 8.3 14.9 2.7 (3.6) ROE (%) 11.1 13.4 13.6 13.4



Net income growth 94.0 33.3 11.6 9.6 Inventory days 101.2 116.6 122.5 126.4

EPS growth 94.0 16.8 11.1 8.6 Receivables days 209.6 202.4 213.6 220.5


EBITDA margin 8.0 8.3 8.8 9.5 Net debt/equity (%) 56.5 55.0 44.3 30.0

EBIT margin 5.8 6.3 6.7 7.2 Interest cover - EBIT (X) 4.2 5.0 5.5 7.1


Net income pre-preferred dividends 2,633.6 3,510.6 3,919.1 4,297.2

D&A add-back 1,825.8 1,825.8 1,997.6 2,078.0 P/E (analyst) (X) 14.2 15.9 14.3 13.2


Net (inc)/dec working capital (5,165.4) (3,352.7) (802.4) 729.7 EV/EBITDA (X) 8.2 9.5 8.5 7.9

Other operating cash flow 1,713.8 0.0 0.0 0.0 EV/GCI (X) 1.1 1.4 1.3 1.2

Cash flow from operations 1,101.9 2,091.9 5,225.5 7,212.1 Dividend yield (%) 1.8 1.6 1.8 2.0

Capital expenditures (1,007.1) (1,440.1) (1,455.5) (1,533.4)

Acquisitions (1,510.4) (1,047.2) (1,074.9) (1,078.9)


Others 495.2 0.0 0.0 0.0

Cash flow from investments (2,022.3) (2,487.3) (2,530.4) (2,612.3)

Dividends paid (common & pref) (103.1) (687.5) (916.5) (1,023.1)

Inc/(dec) in debt (447.7) (7,986.2) 0.0 0.0


Other financing cash flows (1,416.9) 0.0 0.0 0.0

Cash flow from financing (1,967.7) (8,673.7) (916.5) (1,023.1) Note: Last actual year may include reported and estimated data.

Total cash flow (2,888.1) (9,069.2) 1,778.6 3,576.7 Source: Company data, Goldman Sachs Research estimates.



Business overview ZTE is the second largest communications technology equipment company in China with 15% market share in 2014, according to our estimate. ZTE had 5.1% market share globally in 2014, gaining 0.4% (Huawei gained 1.2%) thanks to strong capex investment at the China telcos for 4G

network construction. ZTE believes the market is becoming more consolidated after Nokia’s proposed acquisition of Alcatel-Lucent, and ZTE’s market share should increase in both domestic as well as overseas markets.

In China, Nokia and Alcatel-Lucent have about 8% market share each. After any consolidation, however, ZTE thinks it unlikely a foreign vendor will be able to capture >10% market share, and thus domestic telecom equipment vendors (including ZTE) should stand to

benefit.

In Europe, ZTE’s current market share is small. After the proposed Nokia and Alcatel-Lucent consolidation, ZTE would become the 4th largest telco equipment vendor, and telcos will want to keep a broad spectrum of equipment providers in order to contain pricing.

Exhibit 94: Communications Service Provider Operational Technology, Worldwide (2014)

Exhibit 95: Both Huawei and ZTE gained market share in 2014

Source: Gartner.

Source: Gartner.

Exhibit 96: China telecom equipment market share (2014)

Exhibit 97: China Telecom vs. Datacom market size (2014)


Source: Company data, IDC, Gao Hua Securities Research.

Ericsson, 17.7%

Huawei, 16.1%


Nokia Networks, 8.2%

Cisco, 5.6%ZTE, 5.1%

NEC, 2.7%

Samsung, 1.9%

Accenture, 1.9%

IBM, 1.8%

Others, 30.1%

‐0.9%

1.2%

‐0.9%

‐0.4%‐0.2%

0.4%

‐0.1%

0.1% 0.1% 0.1%

‐1.0%

‐0.5%

0.0%

0.5%

1.0%

1.5%2014 revenue market share change

Huawei, 42%

ZTE, 15%

Nokia, 10%


Ericsson, 7.5%

Fiberhome, 4%

Others, 13%

China Telecom Equipment market share (2014)

32.88

2.68

‐

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2014

China telecom market size China datacom market size(US$ bn)



Between the No.1 and No.2 Chinese CommTech vendors, ZTE has been losing market share to Huawei over the past five years. Between 2010 and 2014, ZTE’s total share declined 6% from 28% in 2010 to 22% in 2014, among which;

Carrier share declined 2% from 22% in 2010 to 20% in 2014

Consumer share declined 13% from 37% in 2010 to 24% in 2014

Enterprise share declined 27% from 64% in 2010 to 37% in 2014

Exhibit 98: Revenue trends for ZTE and Huawei


Huawei revenue breakdown (RMB mn) 2010 2011 2012 2013 2014

Operators' network 145,800 150,145 160,093 166,512 192,073

yoy growth 3% 7% 4% 15%

Enterprise business 5,834 9,164 11,530 15,263 19,391

yoy growth 57% 26% 32% 27%

Consumers' business 30,914 44,620 48,376 56,986 75,100

yoy growth 44% 8% 18% 32%

Total revenue 182,548 203,929 219,999 238,761 286,564

yoy growth 12% 8% 9% 20%

ZTE revenue breakdown (RMB mn) 2010 2011 2012 2013 2014

Networks 41,990 46,522 41,603 40,696 46,768

yoy growth 11% -11% -2% 15%

Handsets 17,927 26,934 25,839 21,702 23,117

yoy growth 50% -4% -16% 7%

Telecom Software, Services, & Others 10,346 12,799 16,778 12,836 11,586

yoy growth 24% 31% -23% -10%

Total revenue 70,264 86,254 84,219 75,234 81,471

yoy growth 23% -2% -11% 8%

Huawei + ZTE (RMB mn) 2010 2011 2012 2013 2014

Carrier 187,790 196,667 201,696 207,208 238,841

yoy growth 5% 3% 3% 15%

Enterprise 16,180 21,963 28,308 28,099 30,977

yoy growth 36% 29% -1% 10%

Consumer (Handset) 48,841 71,554 74,215 78,688 98,217

yoy growth 47% 4% 6% 25%

Total revenue 252,812 290,183 304,218 313,995 368,035 yoy growth 15% 5% 3% 17%

Revenue share (%) 2010 2011 2012 2013 2014Carrier

Huawei 78% 76% 79% 80% 80%

ZTE 22% 24% 21% 20% 20%

Enterprise

Huawei 36% 42% 41% 54% 63%

ZTE 64% 58% 59% 46% 37%

Consumer (Handset)

Huawei 63% 62% 65% 72% 76%

ZTE 37% 38% 35% 28% 24%

TotalHuawei 72% 70% 72% 76% 78%ZTE 28% 30% 28% 24% 22%



Exhibit 99: ZTE revenue breakdown (2014)

Exhibit 100: ZTE Network’s revenue growth trends are generally in line with China telco capex







Exhibit 103: Government grants’ potential impact on ZTE’s EBIT margin

Exhibit 104: Government grants’ potential impact on Huawei’s EBIT margin



-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

China telco capex yoy ZTE Networks revenue yoy

(30%)

(10%)

10%

30%

50%

70%

Networks Handsets Telecom Software, Services, & Others

39.6%

35.8% 33.2%

35.9% 35.9%

26.5%

34.6% 35.6% 35.4% 35.6% 35.9%

21.7% 23.7%

25.3%

20.3%

15.0% 16.6%

14.6% 15.2% 15.3% 15.8% 16.3% 16.7%

30.3% 28.4% 28.7%

26.6%

19.9%

24.9%

30.8% 31.7% 32.4% 33.2%

-

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Networks Handsets Telecom Software, Services, & Others

‐2%‐1%0%1%2%3%4%5%6%7%8%9%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

ZTE government grants impact on EBIT margin

EBIT margin EBIT margin (ex Government grants)

8%

9%

10%

11%

12%

13%

2011 2012 2013 2014

Huawei government grants impact on EBIT margin

EBIT margin EBIT margin (ex Government grants)



ZTE’s account receivable days remain highest among global peers in the CommTech space,

and its cash conversion cycle got stretched in 2014. Free cash flow has also been very

volatile historically, keeping us on the sidelines.

Exhibit 105: ZTE has the highest account receivable days among its global peers (2014)

Exhibit 106: ZTE’s inventory days is also relatively high compared to industry average (2014)



Exhibit 107: ZTE’s account receivable days improved in 2014, but cash conversion cycle deteriorated on longer inventory days

Exhibit 108: ZTE’s free cash flow has been volatile historically



197

143 133

101 80 75 71 70

-

50

100

150

200

250

Account receivable days

Average

195

135 113 106

80 75 68 66

-

50

100

150

200

250

Inventory days

Average

-

5

10

15

20

25

30

190

195

200

205

210

215

220

2007 2008 2009 2010 2011 2012 2013 2014

Account receivable days Cash conversion cycle (RHS)

(2,033)

1,137 1,790

(1,670)

(6,204)

615

(457)95

(7,000)

(6,000)

(5,000)

(4,000)

(3,000)

(2,000)

(1,000)

0

1,000

2,000

2007 2008 2009 2010 2011 2012 2013 2014

ZTE free cash flow (RMB mn)



Earnings & valuation: Fairly valued, transfer coverage with Neutral We forecast 2015E-17E revenue and EPS CAGR of -1% and +10% for ZTE. We lower 2015E net income estimate on weak handset sales, but raise 2016E/17E net income by 4%/9% on improving margin trends driven by easing competition intensity as the market consolidates. We

adjust ZTE’s share count post the company’s bonus share issuance (effective on July 17, 2015 - 687,508,255 bonus shares). Our 2015E/16E/17E EPS becomes Rmb0.89/0.99/1.08.

Our 12-month target prices of Rmb16.00 for A share and HK$19.00 for H share are both

now based on 15X 2017E EPS. Our matrix valuation framework, which takes into account change in EPS growth and change in CROCI across global CommTech peers, sees ZTE in the bottom left corner, corresponding to a 12X P/E multiple. Since the company is dual-listed on both Hong

Kong stock exchange and Shenzhen stock exchange, we apply a 40% premium to the Shenzhen listing to get 17X. We use the average of ZTE’s Hong Kong multiple (12X) and Shenzhen multiple (17X) to arrive at 15X target multiple, A and H shares should converge after the launch of the Shenzhen-Hong Kong Stock Connect as offshore investors obtain more access to the China onshore market and vice versa. We believe current market prices fairly reflect ZTE’s fundamentals and remain Neutral on both the A share and H share. Please see our earlier

Valuation section for additional details on our valuation methodology.

Exhibit 109: Matrix valuation framework: ZTE fits into the bottom left corner, with a 12X P/E multiple


Exhibit 110: ZTE’s 12-month TP of HK$19.00 and Rmb16.00 is based on 15X 2017E EPS

* Conviction list


17X NA 26XAccelink,

Fiberhome,26X

15X 19X 19X

12X NA 17X ZTE, 12X

Ch

an

ge i

n E

PS

gro

wth

(0

4-1

4 a

vera

ge)

-5%

5%

15%+

-1.5% -0.5% 0.5% 1.5%+

-15%


Ch

an

ge i

n E

PS

gro

wth

(1

4-1

7E

av

era

ge)


-5%

5%

15%+

-1.5% -0.5% 0.5% 1.5%+

-15%



Fiberhome (Rmb) 600498.SS Neutral 26 0% 1.14 30.0 26.8 12%

ZTE (Rmb) 000063.SZ Neutral 12 40% 17 1.08 16.0 17.7 -10%ZTE (HK$) 0763.HK Neutral 12 0% 12 1.08 19.0 17.3 10%

Adjustedmultiple

36

26

15



Exhibit 111: ZTE (A) is trading in line with its 12-month forward average P/E…

Exhibit 112: ZTE (A) 12-month forward P/E band



Exhibit 113: ZTE (H) is trading close to its 12-month forward average P/E…

Exhibit 114: ZTE (H) 12-month forward P/E band



Exhibit 115: GS/GH Communications Technology Equipment Valuation Comp

* Conviction List


0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0xZTE (A share) 12‐month forward P/E

(25.0) (20.0) (15.0) (10.0) (5.0)

‐ 5.0

10.0 15.0 20.0 25.0 30.0 35.0

Jun‐05

Dec‐05

Jun‐06

Dec‐06

Jun‐07

Dec‐07

Jun‐08

Dec‐08

Jun‐09

Dec‐09

Jun‐10

Dec‐10

Jun‐11

Dec‐11

Jun‐12

Dec‐12

Jun‐13

Dec‐13

Jun‐14

Dec‐14

Jun‐15

Dec‐15

Jun‐16

Dec‐16

ZTE (A share)

14.5x 17.3x 20.0x 22.8x 25.5x Price

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0xZTE (H Share) 12‐month forward P/E

(25.0)

(15.0)

(5.0)

5.0

15.0

25.0

35.0

Jun‐05

Dec‐05

Jun‐06

Dec‐06

Jun‐07

Dec‐07

Jun‐08

Dec‐08

Jun‐09

Dec‐09

Jun‐10

Dec‐10

Jun‐11

Dec‐11

Jun‐12

Dec‐12

Jun‐13

Dec‐13

Jun‐14

Dec‐14

Jun‐15

Dec‐15

Jun‐16

Dec‐16

ZTE (H share)

12.5x 15.0x 17.4x 19.9x 22.4x Price


Target Potential

Market cap

EV/ EBITDA

EV/ Sales

FCF yield

Div yield

CROCI

Price Price +/-Side US$ mn 2016E 2016E 2016E 2016E 2016E 2016EZTE (HK$) 0763.HK Neutral 17.3 19.0 10% 9,187 -0.5% 6.4% 9.8% 14.3 8.6 0.8 6.4% 1.8% 12.8%ZTE (Rmb) 000063.SZ Neutral 17.7 16.0 -10% 11,433 -0.5% 6.4% 9.8% 17.8 10.3 0.9 5.2% 1.5% 12.8%Fiberhome (Rmb) 600498.SS Neutral 26.8 30.0 12% 4,392 20.5% 31.8% 32.0% 29.7 18.6 1.6 2.4% 1.5% 21.2%

Alcatel-Lucent (EUR) ALUA.PA Buy 3.7 4.8 29% 11,477 4.7% 16.1% 40.6% 13.1 5.0 0.6 8.3% 0.0% 8.9%



Cisco (US$) CSCO Buy* 27.0 35.0 30% 136,800 3.4% 3.7% 5.7% 11.5 6.1 1.9 8.1% 3.3% 29.0%



Arris (US$) ARRS Buy 32.0 39.0 22% 4,692 31.1% 43.2% 36.5% 9.9 5.5 0.8 10.7% 0.0% 22.8%




P/E

2015E-2017E CAGR

Revenue/EBITDA/EPS



Exhibit 116: GSe vs. Consensus

Source: Company data, Bloomberg, Gao Hua Securities Research.

Exhibit 117: Changes in GS estimates


Exhibit 118: ZTE revenue and margin drivers


(RMB mn) 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E

ZTE

Revenue 81,471 93,645 96,198 92,702 81,471 93,603 102,697 111,384 0% 0% ‐6% ‐17%

yoy % 8% 15% 3% ‐4% 8% 15% 10% 8%

Net income 2,634 3,511 3,919 4,297 2,634 3,485 3,935 4,602 0% 1% 0% ‐7%

yoy % 94% 33% 12% 10% 94% 32% 13% 17%

EPS (RMB) 0.77 0.89 0.99 1.08 0.77 0.92 1.02 1.17 0% ‐2% ‐3% ‐8%

yoy % 94% 17% 11% 9% 94% 19% 11% 15%

GSE Bloomberg Consensus GSE vs Cons

(RMB mn) 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E

ZTE

Revenue 81,471 93,645 96,198 92,702 81,471 95,152 98,396 98,794 0% ‐2% ‐2% ‐6%

yoy % 8% 15% 3% ‐4% 8% 17% 3% 0%

Net income 2,634 3,511 3,919 4,297 2,634 3,760 3,757 3,952 0% ‐7% 4% 9%

yoy % 94% 33% 12% 10% 94% 43% 0% 5%

EPS (RMB) 0.77 0.89 0.99 1.08 0.77 1.09 1.09 1.15 0% ‐18% ‐9% ‐6%

yoy % 94% 17% 11% 9% 94% 43% 0% 5%

GSE (New) GSE (Old) New vs Old

ZTE revenue by product (RMB mn) 2013 2014 2015E 2016E 2017E 1H2013 2H2013 1H2014 2H2014 1H2015 2H2015ENetworks 40,696 46,768 55,719 55,795 51,449 19,050 21,645 21,836 24,933 28,514 27,205

% change yoy ‐2% 15% 19% 0% ‐8% ‐6% 14% 1% 14% 14% ‐5%% of total revenues 54.1% 57.4% 59.5% 58.0% 55.5% 50.7% 57.5% 57.9% 57.0% 62.1% 57.0%

Handsets 21,702 23,117 21,143 21,183 21,222 12,461 9,241 10,406 12,711 9,960 11,184% change yoy ‐16% 7% ‐9% 0% 0% 8% ‐26% 13% 22% ‐22% 12%

% of total revenues 28.8% 28.4% 22.6% 22.0% 22.9% 33.2% 24.5% 27.6% 29.0% 21.7% 23.4%Telecom Software, Services, & Others 12,836 11,586 16,783 19,220 20,030 6,065 6,771 5,455 6,131 7,426 9,358

% change yoy ‐23% ‐10% 45% 15% 4% ‐37% 12% ‐19% 12% 21% 26%% of total revenues 17.1% 14.2% 17.9% 20.0% 21.6% 16.1% 18.0% 14.5% 14.0% 16.2% 19.6%

Total revenue 75,234 81,471 93,645 96,198 92,702 37,576 37,657 37,697 43,774 45,899 47,747% change yoy ‐10.7% 8.3% 14.9% 2.7% ‐3.6% ‐9.6% 0.2% 0.1% 16.1% 4.9% 4.0%

ZTE gross profit by product 2013 2014 2015E 2016E 2017E 1H2013 2H2013 1H2014 2H2014 1H2015 2H2015ENetworks 14,083 16,631 19,745 19,869 18,478 6,163 7,920 7,711 8,920 9,908 9,837% change yoy 28% 18% 19% 1% ‐7% 29% 29% ‐3% 16% 11% ‐1%Gross margin % 34.6% 35.6% 35.4% 35.6% 35.9% 32.4% 36.6% 35.3% 35.8% 34.7% 36.2%

Handsets 3,179 3,514 3,245 3,356 3,463 1,910 1,269 1,625 1,888 1,550 1,695% change yoy ‐26% 11% ‐8% 3% 3% ‐1% ‐34% 28% 16% ‐18% 9%Gross margin % 14.6% 15.2% 15.3% 15.8% 16.3% 15.3% 13.7% 15.6% 14.9% 15.6% 15.2%

Telecom Software, Services, & Others 3,197 3,568 5,313 6,236 6,659 1,578 1,618 1,785 1,783 2,352 2,961% change yoy ‐4% 12% 49% 17% 7% 7% 3% 10% 0% 32% 26%Gross margin % 24.9% 30.8% 31.7% 32.4% 33.2% 26.0% 23.9% 32.7% 29.1% 31.7% 31.6%

Total gross profit 20,459 23,712 28,304 29,461 28,600 9,651 10,808 11,121 12,591 13,810 14,493% change yoy 10% 16% 19% 4% ‐3% 18% 12% 3% 13% 10% 5%Gross margin % 27.2% 29.1% 30.2% 30.6% 30.9% 25.7% 28.7% 29.5% 28.8% 30.1% 30.4%



Key risks 1. Higher/lower-than-expected telco capex spend

57% of ZTE’s revenue came from carrier networks in 2014, of which we estimate 65% are domestic and 35% overseas. ZTE’s revenue is driven by both wireless capex and wireline

capex, so both 3G-to-4G upgrade on the mobile side and copper-to-fiber upgrade on the fixedline side would be beneficial to the company.

2. Better/worse-than-expected handset sales

Handset sales accounted for 28% of total revenue in 2014, of which we estimate around 30% were sold domestically, and 70% overseas (mainly in the U.S.). This year, we expect revenue to decline 9% yoy mainly from continued weakness in China market. In 2016, ZTE’s

strategy is to focus on emerging markets in ASEAN as well as Africa to benefit from the growth in smartphone adoption.

3. More/less-than-expected competition intensity in domestic and overseas markets

The CommTech industry has seen strong competition mainly from Chinese vendors such as Huawei and ZTE as they tried to grab market share from the European vendors from Europe and Asia markets. Now that Huawei has achieved an incumbent position in the European

market, we expect competition intensity to ease going forward. In addition, post the proposed Nokia/Alcatel-Lucent acquisition, ZTE expects to improve its market share both in China and in Europe.



Fiberhome (600498.SS): Fiber inv. to drive growth; initiate at Neutral

Investment view Fiberhome is the third largest optical equipment vendor in China with about 4% market share. The company supplies optical communications equipment to both telco operators (Telecom) and data center operators (Datacom), it also manufactures optical fiber and cables for use in optical networks. We expect Fiberhome’s revenue growth to accelerate to 26% yoy in 2016E from

18% yoy in 2015E as a result of strong fiber investment at both telcos and cloud service providers as they move to achieve higher speeds and expand network capacity to support the internet consumption growth. We initiate coverage on Fiberhome with Neutral and 12-month target price of Rmb30.00 (based on 26X 2017E EPS), implying 12% potential upside.

Core drivers of growth Fiberhome’s revenue is mainly driven by telcos’ capex spending in the

wireline side for either fixed broadband upgrade from copper to fiber, or mobile backhaul upgrade and capacity expansion. As of 1H15, 88% of Fiberhome’s total revenue is from the domestic market (+16% yoy), and 22% is from overseas markets (+11% yoy).

(1) Telecom system equipment revenue accounted for 61% of total

revenue and grew 16% yoy in 1H15. We believe growth in this segment will

accelerate to 28% in 2016E driven by relatively strong fixed-line investment at telcos.

(2) Data networking product revenue accounted for 8% of total revenue

and grew 20% yoy in 1H15. We expect strong growth in this segment to continue at 37% yoy in 2016E, with the rise of public cloud service providers (e.g. Aliyun) in China.

(3) Optical fiber and cable revenue accounted for 31% of total revenue

and grew 41% yoy in 1H15. We expect growth in this segment to spike in 2015E at 23% yoy driven by China Mobile’s procurement, and slow down to 16% yoy in 2016E.

We estimate Fiberhome held just 1.0% of global communications technology equipment revenue market share in 2014 (Huawei 16.1% and ZTE 5.1%,

according to Gartner).

Valuation We forecast 2015E-2017E revenue CAGR of 21% and EPS CAGR of 32% for Fiberhome. Our 12-month target price of Rmb30.00 is based on 26X 2017E EPS, (derived from our P/E Matrix of global CommTech peers) and implies 12% potential upside. We remain Neutral given limited relative upside potential and prefer Accelink (CL-Buy), which offers higher upside potential

and has a stronger market position both in China and globally.

Key risks (1) Faster/slower-than-expected telco optical capex decline; (2) Faster/slower-than-expected fiber network upgrade progress; (3) More/less-than-expected competition intensity in domestic and overseas markets.

Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Fiberhome Telecom Tech (600498.SS)


Key data Current

Price (Rmb) 26.84

12 month price target (Rmb) 30.00

Market cap (Rmb mn / US$ mn) 28,099.3 / 4,389.1


12/14 12/15E 12/16E 12/17E

EPS (Rmb) New 0.55 0.66 0.90 1.14

EPS revision (%) -- -- -- --

EPS growth (%) 2.4 19.3 37.4 26.7

EPS (dil) (Rmb) New 0.54 0.66 0.90 1.14

P/E (X) 25.4 40.9 29.7 23.5

P/B (X) 2.2 4.3 4.0 3.6

EV/EBITDA (X) 15.9 26.9 19.5 15.1

Dividend yield (%) 1.8 1.1 1.5 2.0

ROE (%) 9.1 10.8 13.8 16.2

CROCI (%) 8.5 17.4 21.2 23.8

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

10

15

20

25

30

35

40

45



Fiberhome Telecom Tech (L) Shanghai SE A Share Index (R)


Absolute 32.2 (34.0) 57.2

Rel. to Shanghai SE A Share Index 18.6 (7.4) 29.4




Fiberhome Telecom Tech: Summary financials


Total revenue 10,721.3 12,478.3 15,631.2 18,116.9 Cash & equivalents 4,101.2 4,578.0 4,942.9 5,460.0

Cost of goods sold (7,882.5) (9,099.5) (11,298.8) (12,985.0) Accounts receivable 4,235.2 4,550.3 5,462.7 6,193.8

SG&A (1,186.8) (1,354.3) (1,648.6) (1,867.3) Inventory 4,560.0 4,937.2 5,927.5 6,695.5

R&D (1,176.4) (1,369.2) (1,715.1) (1,987.9) Other current assets 294.6 294.6 294.6 294.6

Other operating profit/(expense) 0.0 0.0 0.0 0.0 Total current assets 13,190.9 14,360.0 16,627.6 18,643.8

ESO expense -- -- -- -- Net PP&E 1,445.6 1,601.5 1,829.0 2,096.8

EBITDA 743.9 960.8 1,314.6 1,670.3 Net intangibles 273.4 258.3 244.0 230.4

Depreciation & amortization (268.3) (305.5) (345.9) (393.7) Total investments 522.9 522.9 522.9 522.9

EBIT 475.6 655.3 968.6 1,276.6 Other long-term assets 0.0 0.0 0.0 0.0


Interest expense 0.0 0.0 0.0 0.0

Income/(loss) from uncons. subs. 0.0 0.0 0.0 0.0 Accounts payable 7,149.1 7,905.5 9,600.6 10,909.4

Others 167.0 167.0 167.0 167.0 Short-term debt 1,154.2 1,154.2 1,154.2 1,154.2

Pretax profits 663.1 844.2 1,160.1 1,470.0 Other current liabilities (245.7) (177.8) (59.2) 57.0

Income tax (33.0) (42.0) (57.7) (73.2) Total current liabilities 8,057.6 8,881.9 10,695.5 12,120.7

Minorities (89.9) (114.5) (157.3) (199.4) Long-term debt 122.4 122.4 122.4 122.4

Net income pre-preferred dividends 540.2 687.7 945.0 1,197.5 Other long-term liabilities 159.5 159.5 159.5 159.5

Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 281.8 281.8 281.8 281.8

Net income (pre-exceptionals) 540.2 687.7 945.0 1,197.5 Total liabilities 8,339.4 9,163.8 10,977.4 12,402.5


Net income 540.2 687.7 945.0 1,197.5 Preferred shares 0.0 0.0 0.0 0.0


EPS (basic, pre-except) (Rmb) 0.55 0.66 0.90 1.14 Minority interest 893.9 1,008.4 1,165.8 1,365.2





DPS (Rmb) 0.25 0.30 0.42 0.53



Ratios 12/14 12/15E 12/16E 12/17E


Sales growth 17.7 16.4 25.3 15.9 ROE (%) 9.1 10.8 13.8 16.2



Net income growth 4.1 27.3 37.4 26.7 Inventory days 205.0 190.5 175.5 177.4

EPS growth 2.4 19.3 37.4 26.7 Receivables days 142.8 128.5 116.9 117.4


EBITDA margin 6.9 7.7 8.4 9.2 Net debt/equity (%) (39.8) (43.6) (44.5) (46.0)

EBIT margin 4.4 5.3 6.2 7.0 Interest cover - EBIT (X) NM NM NM NM


Net income pre-preferred dividends 540.2 687.7 945.0 1,197.5

D&A add-back 268.3 305.5 345.9 393.7 P/E (analyst) (X) 25.4 40.9 29.7 23.5


Net (inc)/dec working capital 306.5 64.2 (207.6) (190.3) EV/EBITDA (X) 15.9 26.9 19.5 15.1

Other operating cash flow (383.8) 0.0 0.0 0.0 EV/GCI (X) 1.9 4.0 3.6 3.3

Cash flow from operations 821.1 1,171.9 1,240.7 1,600.3 Dividend yield (%) 1.8 1.1 1.5 2.0

Capital expenditures (383.5) (446.3) (559.1) (648.0)

Acquisitions 0.0 0.0 0.0 0.0


Others (16.9) 0.0 0.0 0.0

Cash flow from investments (398.8) (446.3) (559.1) (648.0)

Dividends paid (common & pref) (164.2) (248.8) (316.7) (435.2)

Inc/(dec) in debt (125.4) 0.0 0.0 0.0


Other financing cash flows (109.0) 0.0 0.0 0.0

Cash flow from financing (154.6) (248.8) (316.7) (435.2) Note: Last actual year may include reported and estimated data.

Total cash flow 267.6 476.8 364.9 517.1 Source: Company data, Goldman Sachs Research estimates.



Exhibit 119: Fiberhome’s revenue growth vs. peers

Exhibit 120: Fiberhome’s gross margin vs. peers



Exhibit 121: Fiberhome’s EBIT margin vs. peers

Exhibit 122: Government grants’ potential impact on Fiberhome’s EBIT margin



Exhibit 123: Fiberhome revenue breakdown (2014)

Exhibit 124: Fiberhome’s domestic revenue growth is highly correlated with China’s wireline capex growth



‐20%

0%

20%

40%

60%


Ciena Infinera Fiberhome

20%

25%

30%

35%

40%

45%

50%

55%Gross margin %


‐20%

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%EBIT margin %


‐1%0%1%2%3%4%5%6%7%8%9%

10%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fiberhome government grants impact on EBIT margin

EBIT margin EBIT margin (incl Government grants)

63%11%

26%

Telecom system equipment

Data networking product

Optical fiber and cable

77%

23%

Domestic

Overseas

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-10%

0%

10%

20%

30%

40%

50%

60%

Fiberhome domestic revenue yoy China wireline capex yoy (RHS)







12-month target price of Rmb30.00 implies 12% potential upside We forecast 2015E-2017E revenue CAGR of 21% and EPS CAGR of 32% for Fiberhome. Our

12-month target price of Rmb30.00 implies 12% potential upside and is based on 26X 2017E EPS, derived from our Matrix valuation framework, which takes into account change in EPS growth and change in CROCI across global CommTech peers.

Exhibit 127: Matrix valuation framework: Fiberhome fits into the top right corner, with 26X a P/E multiple


Exhibit 128: Fiberhome’s 12-month target price of RMB30 is based on 26X 2017E EPS

* Conviction List


0%

10%

20%

30%

40%

50%

60%

70%

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

Telecom Datacom Optical fiber and cable

31.7%27.9%

23.0%26.1% 26.2% 25.2% 24.0% 25.0% 25.5% 26.0%

43.5% 43.2% 42.4% 43.2% 43.0%

53.9% 52.6% 52.6% 52.6% 52.6%

16.9%

21.6% 23.3%19.4% 18.4%

21.1% 22.2% 22.2% 22.2% 22.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

Telecom Datacom Optical fiber and cable

17X NA 26XAccelink,

Fiberhome,26X

15X 19X 19X

12X NA 17X ZTE, 12X

Ch

an

ge i

n E

PS

gro

wth

(0

4-1

4 a

vera

ge)

-5%

5%

15%+

-1.5% -0.5% 0.5% 1.5%+

-15%


Ch

an

ge i

n E

PS

gro

wth

(1

4-1

7E

av

era

ge)


-5%

5%

15%+

-1.5% -0.5% 0.5% 1.5%+

-15%



Fiberhome (Rmb) 600498.SS Neutral 26 0% 1.14 30.0 26.8 12%ZTE (Rmb) 000063.SZ Neutral 12 40% 17 1.08 16.0 17.7 -10%

ZTE (HK$) 0763.HK Neutral 12 0% 12 1.08 19.0 17.3 10%

Adjustedmultiple

36

26

15



Exhibit 129: Fiberhome is trading close to its 12-month forward average P/E

Exhibit 130: Fiberhome 12-month forward P/E band



Exhibit 131: GS/GH CommTech Valuation Comp

* Conviction List


Our revenue forecasts for Fiberhome are driven by China’s telco wireline capex, Fiberhome’s

market share, and our growth assumption in the overseas market. Our 2016E revenue growth is accelerating vs. decelerating consensus revenue growth given our China Telco analyst is forecasting wireline capex decline to ease to -2% yoy in 2016E from -8% yoy in 2015E; unfortunately consensus capex has no wireline/wireless breakdown.

Exhibit 132: Gao Hua vs. Consensus

Source: Company data, Wind, Gao Hua Securities Research.

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

50.0x

55.0xFiberhome 12‐month forward P/E

‐

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Jun‐07

Dec‐07

Jun‐08

Dec‐08

Jun‐09

Dec‐09

Jun‐10

Dec‐10

Jun‐11

Dec‐11

Jun‐12

Dec‐12

Jun‐13

Dec‐13

Jun‐14

Dec‐14

Jun‐15

Dec‐15

Jun‐16

Dec‐16

Fiberhome

20.1x 23.6x 27.1x 30.6x 34.0x Price


Target Potential

Market cap

EV/ EBITDA

EV/ Sales

FCF yield

Div yield

CROCI

Price Price +/-Side US$ mn 2016E 2016E 2016E 2016E 2016E 2016EZTE (HK$) 0763.HK Neutral 17.3 19.0 10% 9,187 -0.5% 6.4% 9.8% 14.3 8.6 0.8 6.4% 1.8% 12.8%

ZTE (Rmb) 000063.SZ Neutral 17.7 16.0 -10% 11,433 -0.5% 6.4% 9.8% 17.8 10.3 0.9 5.2% 1.5% 12.8%

Fiberhome (Rmb) 600498.SS Neutral 26.8 30.0 12% 4,392 20.5% 31.8% 32.0% 29.7 18.6 1.6 2.4% 1.5% 21.2%Alcatel-Lucent (EUR) ALUA.PA Buy 3.7 4.8 29% 11,477 4.7% 16.1% 40.6% 13.1 5.0 0.6 8.3% 0.0% 8.9%



Cisco (US$) CSCO Buy* 27.0 35.0 30% 136,800 3.4% 3.7% 5.7% 11.5 6.1 1.9 8.1% 3.3% 29.0%



Arris (US$) ARRS Buy 32.0 39.0 22% 4,692 31.1% 43.2% 36.5% 9.9 5.5 0.8 10.7% 0.0% 22.8%




P/E

2015E-2017E CAGR

Revenue/EBITDA/EPS

(RMB mn) 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E

Fiberhome

Revenue 10,721 12,478 15,631 18,117 10,721 12,862 15,104 18,101 0% ‐3% 3% 0%

yoy % 18% 16% 25% 16% 18% 20% 17% 20%

Net income 540 688 945 1,197 540 726 908 1,127 0% ‐5% 4% 6%

yoy % 4% 27% 37% 27% 4% 34% 25% 24%

EPS (RMB) 0.55 0.66 0.90 1.14 0.55 0.69 0.87 1.08 0% ‐5% 4% 6%

yoy % 2% 19% 37% 27% 2% 25% 26% 24%

GSE Wind Consensus GSE vs Cons



Exhibit 133: Fiberhome revenue and margin drivers


Key risks 1. Faster/slower-than-expected telco optical capex decline

Fiberhome’s revenue is mainly driven by telcos’ capex spending in the wireline side for either

fixed broadband upgrade from copper to fiber, or mobile backhaul upgrade and capacity expansion. As of 1H15, 88% of Fiberhome’s total revenue is from domestic market (+16% yoy), and 22% is from overseas markets (+11% yoy).

2. Faster/slower-than-expected fiber broadband network upgrade progress

Fiberhome’s growth is a function of the network generation switch from copper to fiber in both China and overseas markets, which will be driven by the need for higher speed and capacity

networks (both mobile and fixedline) to support the strong growth in internet data consumption.

3. More/less-than-expected competition intensity in domestic and overseas markets

The CommTech industry has seen strong competition mainly from Chinese vendors such as Huawei and ZTE as they tried to grab market share from the European vendors from Europe and Asia markets. Now that Huawei has achieved an incumbent position in the European

market, we expect competition intensity to ease going forward.

(RMB mn) 2013 2014 2015E 2016E 2017E 1H13 2H13 1H14 2H14 1H15 2H15ETelecom 5,310 6,561 7,511 9,565 11,086 2,514 2,795 3,121 3,440 3,606 3,905 yoy % 10% 24% 14% 27% 16% 16% 5% 24% 23% 16% 14%hoh % ‐5% 11% 12% 10% 5% 8%

COGS (3,973) (4,988) (5,633) (7,126) (8,204) (1,944) (2,029) (2,409) (2,579) (2,736) (2,897) Gross profit 1,337 1,573 1,878 2,439 2,882 571 766 712 861 870 1,007 Gross margin % 25.2% 24.0% 25.0% 25.5% 26.0% 22.7% 27.4% 22.8% 25.0% 24.1% 25.8%

Datacom 1,043 1,184 1,378 1,882 2,362 373 670 420 763 504 873 yoy % 18% 13% 16% 37% 26% 53% 5% 13% 14% 20% 14%hoh % ‐42% 80% ‐37% 82% ‐34% 73%

COGS (481) (561) (653) (892) (1,120) (180) (301) (221) (340) (267) (386) Gross profit 562 622 724 990 1,242 193 369 199 423 238 487 Gross margin % 53.9% 52.6% 52.6% 52.6% 52.6% 51.8% 55.0% 47.5% 55.4% 47.1% 55.7%

Optical fiber and cable 2,525 2,742 3,316 3,841 4,271 1,312 1,214 1,297 1,445 1,824 1,492 yoy % 13% 9% 21% 16% 11% 12% 14% ‐1% 19% 41% 3%hoh % 23% ‐7% 7% 11% 26% ‐18%

COGS (1,992) (2,134) (2,581) (2,990) (3,325) (1,058) (934) (998) (1,137) (1,424) (1,157) Gross profit 534 608 735 851 946 254 280 299 308 400 334 Gross margin % 21.1% 22.2% 22.2% 22.2% 22.2% 19.4% 23.0% 23.1% 21.3% 21.9% 22.4%

Core revenue 8,878 10,486 12,205 15,288 17,720 4,199 4,679 4,838 5,648 5,935 6,270 yoy % 12% 18% 16% 25% 16% 17% 7% 15% 21% 23% 11%

COGS (6,445) (7,684) (8,868) (11,009) (12,649) (3,181) (3,265) (3,627) (4,056) (4,427) (4,441) Gross profit 2,433 2,803 3,337 4,280 5,071 1,018 1,415 1,210 1,592 1,508 1,829 Gross margin % 27.4% 26.7% 27.3% 28.0% 28.6% 24.2% 30.2% 25.0% 28.2% 25.4% 29.2%

Others 231 235 274 343 397 136 95 157 78 184 90 yoy % ‐6% 2% 16% 25% 16% 11% ‐23% 15% ‐18% 17% 15%

COGS (160) (199) (232) (290) (336) (99) (60) (111) (88) (146) (85) Gross profit 71 36 42 53 61 37 35 46 (10) 38 5 Gross margin % 30.9% 15.4% 15.4% 15.4% 15.4% 27.0% 36.5% 29.4% ‐12.9% 20.4% 5.1%

Total revenue 9,109 10,721 12,478 15,631 18,117 4,335 4,774 4,995 5,726 6,119 6,359 yoy % 11% 18% 16% 25% 16% 17% 6% 15% 20% 23% 11%

COGS (6,605) (7,882) (9,099) (11,299) (12,985) (3,280) (3,325) (3,738) (4,144) (4,573) (4,526) Gross profit 2,504 2,839 3,379 4,332 5,132 1,055 1,450 1,257 1,582 1,546 1,833 Gross margin % 27.5% 26.5% 27.1% 27.7% 28.3% 24.3% 30.4% 25.2% 27.6% 25.3% 28.8%



Company specific disclosures

The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of Goldman Sachs and referred to in this research.

Goldman Sachs had a non-securities services client relationship during the past 12 months with:

Huawei Technologies Co., Ltd.

Appendix I: Glossary

Active optical components – process a signal and change its basic characteristics or

transmission format. Active components include transceivers, amplifiers, repeaters etc.

BBU/RRU – Baseband unit/Remote radio unit, BBU is a unit that processes baseband in

telecomm systems. A typical wireless telecom station consists of the baseband processing unit and the radio frequency processing unit (remote radio unit - RRU). The baseband unit is placed in the equipment room and connected with RRU via optical fiber. The BBU is responsible for

communication through the physical interface. The RRU is often mounted at the top or middle of the telecommunication tower or mast.

Carrier-Neutral data center - allows interconnection between multiple telecommunication

carriers and/or colocation providers.

Data center vs. Cloud – While the phrases “data center” and “cloud” are sometimes used

interchangeably, there are differences between the two. The main difference is that a cloud is an

off-premise form of computing that stores data on the Internet, whereas a data center refers to on-premise hardware that stores data within an organization's local network. Although both types of computing systems can store data, as a physical unit, only a data center can store servers and other equipment. As such, cloud service providers use data centers to house cloud services and cloud-based resources.

HFC – Hybrid fiber-coaxial, is a telecommunications industry term for a broadband network that

combines optical fiber and coaxial cable. It has been commonly employed globally by cable television operators since the early 1990s.

OTN – Optical transport network, defined in ITU G.709, also commonly called “digital wrapper” is

a next-generation, industry-standard protocol providing an efficient and globally-accepted way to multiplex services onto optical light paths. It allows network operators to converge networks through seamless transport of the numerous types of legacy protocols, while providing the

flexibility required to support future client protocols.

OLT – Optical line terminal, is a device which serves as the service provider endpoint of a

passive optical network.

ODN – Optical distribution network, is the physical fiber and optical devices that distribute signals

to users in a telecommunications network.

ONU/ONT – Optical network unit/Optical network terminal, is the consumer end equipment in a

passive optical network.

Passive optical components – only pass on a signal but do not alter the signal’s basic

characteristics or transmission format. Passive components include WDMs, splitters, attenuators, isolaters, connectors etc.



PON – Passive optical network, is a telecommunications network that uses point-to-multipoint

fiber to the end-points in which unpowered optical splitters are used to enable a single optical fiber to serve multiple end-points.

PTN – Packet transport network, is a transport network that is based on packet switching and

meets certain Operation Administration and Maintenance (OAM), protection, and network management requirements.

Private cloud – is only accessible by a single organization, enabling greater control and privacy.

Public cloud – allows services to be provided using shared physical resources and is accessible

over a public network (the internet).

ROADM – Reconfigurable optical add-drop multiplexer, is a form of optical add-drop multiplexer

that adds the ability to remotely switch traffic from a WDM system at the wavelength layer. This is achieved through the use of a wavelength selective switching (WSS) module. This allows individual or multiple wavelengths carrying data channels to be added and/or dropped from a transport fiber without the need to convert the signals on all of the WDM channels to electronic signals and back again to optical signals.

SDH/SONET – Synchronous digital hierarchy/Synchronous optical networking, are standardized

protocols that transfer multiple digital bit streams synchronously over optical fiber using lasers or highly coherent light from light-emitting diodes (LEDs).

WDM – Wavelength division multiplexing, is a technology which multiplexes a number of optical

carrier signals onto a single optical fiber by using different wavelengths (i.e., colors) of laser light.

xDSL – Refers collectively to all types of Digital Subscriber Lines, the two main categories being

ADSL (asymmetric digital subscriber line) and SDSL (symmetric digital subscriber line). Two other types of xDSL technologies are High-data-rate DSL (HDSL) and Very high DSL (VDSL).



Appendix II: Matrix valuation framework

Global CommTech peers we included in the our valuation framework are covered companies: Alcatel-Lucent, Ericsson, Nokia, Cisco, Juniper, Adtran, Arris, Ciena, Infinera, Finisar, Lumentum, JDS Uniphase (Viavi), Avago, Sumitomo Electric, and non-covered companies: Oclaro, NeoPhotonics, II-VI, Applied Optoelectronics, and IPG Photonics.

Exhibit 134: Global CommTech peers historical average metrics

*Note: we use Bloomberg estimates for non-covered stocks.


Exhibit 135: Matrix mapping for global CommTech peers


04‐14 averageChange in EPS

growth

Change in

CROCIP/E (X)

Infinera 117.3% 4.1% 41

Finisar 25.3% 0.9% 19

Avago 17.0% 0.8% 13

Ciena 11.3% 2.2% 30

II‐VI 9.7% ‐0.6% 18

Nokia 8.6% ‐5.4% 16

Alcatel‐Lucent 4.6% ‐0.1% 17

Sumitomo Electric 3.7% 0.2% 20

JDSU 0.0% 1.0% 14

Oclaro 0.0% 1.1% 25

Adtran ‐0.4% ‐1.2% 19

Cisco ‐1.7% ‐0.9% 12

Juniper ‐4.8% 0.3% 19

Ericsson ‐5.1% ‐4.7% 12

IPG Photonics ‐13.1% 1.2% 21

Arris ‐67.1% 1.2% 12

II-VI Nokia

Infinera Finisar Avago Ciena

Adtran Cisco

Sumitomo Electric Juniper

JDSU Oclaro

EricssonIPG

Photonics ArrisC

han

ge

in E

PS

gro

wth

(1

4-17

E a

vera

ge)


-5%

5%

15%+

-1.5% -0.5% 0.5% 1.5%+

-15%



信息披露附录申明我们，侯雪婷、吕东风, PhD，在此申明，本报告所表述的所有观点准确反映了我们对上述公司或其证券的个人看法。此外，我们的薪金的任何部分不曾与，

不与，也将不会与本报告中的具体推荐意见或观点直接或间接相关。

投资摘要投资摘要部分通过将一只股票的主要指标与其行业和市场相比较来评价该股的投资环境。所描述的四个主要指标包括增长、回报、估值倍数和波动性。增长、

回报和估值倍数都是运用数种方法综合计算而成，以确定该股在地区研究行业内所处的百分位排名。

每项指标的准确计算方式可能随着财务年度、行业和所属地区的不同而有所变化，但标准方法如下：

增长是下一年预测与当前年度预测的综合比较，如每股盈利、EBITDA 和收入等。回报是各项资本回报指标一年预测的加总，如 CROCI、平均运用资本回报率

和净资产回报率。估值倍数根据一年预期估值比率综合计算，如市盈率、股息收益率、EV/FCF、EV/EBITDA、EV/DACF、市净率。波动性根据 12个月的历史

波动性计算并经股息调整。

Quantum Quantum 是提供具体财务报表数据历史、预测和比率的高盛专有数据库，它可以用于对单一公司的深入分析，或在不同行业和市场的公司之间进行比较。

GS SUSTAIN GS SUSTAIN是侧重于长期做多建议的相对稳定的全球投资策略。GS SUSTAIN关注名单涵盖了我们认为相对于全球同业具有持续竞争优势和出色的资本回

报、因而有望在长期内表现出色的行业领军企业。我们对领军企业的筛选基于对以下三方面的量化分析：现金投资的现金回报、行业地位和管理水平（公司管

理层对行业面临的环境、社会和企业治理方面管理的有效性）。

信息披露

相关的股票研究范围

侯雪婷：Asia Pacific-CS Securities、中国科技行业。吕东风, PhD：中国电信行业、中国科技行业。

Asia Pacific-CS Securities：光迅科技、国航(A)、国航(H)、AirAsia Bhd、AirAsia X Berhad、Airports of Thailand PCL、Apollo Tyres、Asia Cement、Asiana Airlines、步步高、Bharat Forge、Biosensors International Group、Bosch India、光明乳业、Cebu Air、中华航空、中青旅、东方航空(A)、China Eastern Airlines (ADS)、东方航空(H)、中国国旅、华润三九、神威药业、南方航空(A)、南方航空(ADS)、南方航空(H)、Chipbond Technology Corp.、CJ E&M Corporation、CJ O Shopping、Daewoo Securities、东方电气(A)、东方电气(H)、易居中国、峨眉山 A、Epistar、EVA Airways、烽火通信、海天味业、新华

都、歌尔声学、国美电器、Grand Korea Leisure Co.、GS Holdings、GS Home Shopping、Hanwha Chemical、哈尔滨电气、承德露露、黄山旅游、黄山 B股、Hyundai Securities、Interpark INT Corp、加加食品、宁沪高速(A)、宁沪高速(H)、江苏恒瑞医药、中炬高新、Keppel Corp.、King Yuan Electronics Co.、Kiwoom Securities、Korea Investment Holdings、Korean Air、Korean Re、老凤祥、乐居、LG Chem、LG Display、LG Electronics、LIG Insurance Co.、利

君国际、Malaysia Airports Holdings、迈瑞公司、Motherson Sumi Systems、黑芝麻、浩泽净水、Paradise Company Limited、凤凰医疗、Ruentex Industries、S-Oil Corp.、Samsung Card、Samsung Securities、Sembcorp Industries、Sembcorp Marine、上海电气、锦江股份、深高速(A)、深高速(H)、立

讯精密、欧菲光、大富科技、成渝高速(A)、成渝高速(H)、四环医药、SK Innovation、宋城演艺、苏宁云商、舜宇光学、Thai Airways、Tong Yang Life Insurance、联邦制药、Woori Investment & Securities、药明康德、燕京啤酒、张裕 A、张裕 B、伊利股份、永辉超市、云南白药、Zee Entertainment Enterprises、贝因美、浙江沪杭甬、中百集团。

中国科技行业：航天信息、科大讯飞、石基信息、神州泰岳、海康威视、汉民微测、华虹半导体、恒生电子、联发科、四维图新、均胜电子、Parade Technologies Ltd.、台积电、台积电 (ADR)、联电、联电 (ADR)、用友网络、大华股份、中兴通讯(A)、中兴通讯(H)。

中国电信行业：中国通信服务、中国移动、中国移动(ADR)、中电信、中电信(ADR)、中联通(H)、中联通(ADS)、中联通(A)。

与公司有关的法定披露

以下信息披露了高盛高华证券有限责任公司（“高盛高华”）与北京高华证券有限责任公司（“高华证券”）投资研究部所研究的并在本研究报告中提及的公司之间

的关系。

高盛高华在过去 12个月中曾从下述公司获得投资银行服务报酬：烽火通信 (Rmb26.62)

高盛高华在今后 3个月中预计将从下述公司获得或寻求获得投资银行服务报酬：烽火通信 (Rmb26.62)、中兴通讯(A) (Rmb17.99)、中兴通讯(H) (HK$17.38)

高盛高华在过去 12个月中与下述公司存在投资银行客户关系：烽火通信 (Rmb26.62)、中兴通讯(A) (Rmb17.99)、中兴通讯(H) (HK$17.38)

没有对下述公司的具体信息披露：光迅科技 (Rmb59.35)

公司评级、研究行业及评级和相关定义

买入、中性、卖出：分析师建议将评为买入或卖出的股票纳入地区投资名单。一只股票在投资名单中评为买入或卖出由其相对于所属研究行业的潜在回报决定。

任何未获得买入或卖出评级的股票均被视为中性评级。每个地区投资评估委员会根据 25-35%的股票评级为买入、10-15%的股票评级为卖出的全球指导原则来

管理该地区的投资名单；但是，在某一特定行业买入和卖出评级的分布可能根据地区投资评估委员会的决定而有所不同。地区强力买入或卖出名单是以潜在回

报规模或实现回报的可能性为主要依据的投资建议。

潜在回报：代表当前股价与一定时间范围内预测目标价格之差。分析师被要求对研究范围内的所有股票给出目标价格。潜在回报、目标价格及相关时间范围在

每份加入投资名单或重申维持在投资名单的研究报告中都有注明。

研究行业及评级：分析师给出下列评级中的其中一项代表其根据行业历史基本面及／或估值对研究对象的投资前景的看法。具吸引力(A)：未来 12个月内投资前

景优于研究范围的历史基本面及／或估值。中性(N)：未来 12个月内投资前景相对研究范围的历史基本面及／或估值持平。谨慎(C)：未来 12个月内投资前景

劣于研究范围的历史基本面及／或估值。



暂无评级(NR)：在高盛高华于涉及该公司的一项合并交易或战略性交易中担任咨询顾问时并在某些其他情况下，投资评级和目标价格已经根据高华证券的政策予

以除去。暂停评级(RS)：由于缺乏足够的基础去确定投资评级或价格目标，或在发表报告方面存在法律、监管或政策的限制，我们已经暂停对这种股票给予投

资评级和价格目标。此前对这种股票作出的投资评级和价格目标(如有的话)将不再有效，因此投资者不应依赖该等资料。暂停研究(CS)：我们已经暂停对该公司

的研究。没有研究(NC)：我们没有对该公司进行研究。不存在或不适用(NA)：此资料不存在或不适用。无意义(NM)：此资料无意义，因此不包括在报告内。

一般披露

本报告在中国由高华证券分发。高华证券具备证券投资咨询业务资格。

本研究报告仅供我们的客户使用。本研究报告是基于我们认为可靠的目前已公开的信息，但我们不保证该信息的准确性和完整性，客户也不应该依赖该信息是

准确和完整的。我们会适时地更新我们的研究，但各种规定可能会阻止我们这样做。除了一些定期出版的行业报告之外，绝大多数报告是在分析师认为适当的

时候不定期地出版。

高盛高华为高华证券的关联机构，从事投资银行业务。高华证券、高盛高华及它们的关联机构与本报告中涉及的大部分公司保持着投资银行业务和其它业务关

系。

我们的销售人员、交易员和其它专业人员可能会向我们的客户及自营交易部提供与本研究报告中的观点截然相反的口头或书面市场评论或交易策略。我们的资

产管理部门、自营交易部和投资业务部可能会做出与本报告的建议或表达的意见不一致的投资决策。

本报告中署名的分析师可能已经与包括高华证券销售人员和交易员在内的我们的客户讨论，或在本报告中讨论交易策略，其中提及可能会对本报告讨论的证券

市场价格产生短期影响的推动因素或事件，该影响在方向上可能与分析师发布的股票目标价格相反。任何此类交易策略都区别于且不影响分析师对于该股的基

本评级，此类评级反映了某只股票相对于报告中描述的研究范围内股票的回报潜力。

高华证券及其关联机构、高级职员、董事和雇员，不包括股票分析师和信贷分析师，将不时地对本研究报告所涉及的证券或衍生工具持有多头或空头头寸，担

任上述证券或衍生工具的交易对手，或买卖上述证券或衍生工具。

在高盛组织的会议上的第三方演讲嘉宾（包括高华证券或高盛其它部门人员）的观点不一定反映全球投资研究部的观点，也并非高华证券或高盛的正式观点。

在任何要约出售股票或征求购买股票要约的行为为非法的地区，本报告不构成该等出售要约或征求购买要约。本报告不构成个人投资建议，也没有考虑到个别

客户特殊的投资目标、财务状况或需求。客户应考虑本报告中的任何意见或建议是否符合其特定状况，以及(若有必要)寻求专家的意见，包括税务意见。本报告

中提及的投资价格和价值以及这些投资带来的收入可能会波动。过去的表现并不代表未来的表现，未来的回报也无法保证，投资者可能会损失本金。

某些交易，包括牵涉期货、期权和其它衍生工具的交易，有很大的风险，因此并不适合所有投资者。外汇汇率波动有可能对某些投资的价值或价格或来自这一

投资的收入产生不良影响。

投资者可以向高华销售代表取得或通过 http://www.theocc.com/about/publications/character-risks.jsp取得当前的期权披露文件。对于包含多重期权买卖的期权

策略结构产品，例如，期权差价结构产品，其交易成本可能较高。与交易相关的文件将根据要求提供。

所有研究报告均以电子出版物的形式刊登在高华客户网上并向所有客户同步提供。高华未授权任何第三方整合者转发其研究报告。有关某特定证券的研究报

告、模型或其它数据，请联络您的销售代表。

北京高华证券有限责任公司版权所有 © 2015 年

未经北京高华证券有限责任公司事先书面同意，本材料的任何部分均不得(i)以任何方式制作任何形式的拷贝、复印件或复制品，或(ii)再次分发。

中国：通讯技术 - jrj.com.cnpg.jrj.com.cn/acc/res/cn_res/indus/2015/12/8/e5146... ·...

Documents