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1、The Road to 5GWinners and Losers in Asias 5G Value ChainAt Smartkarma,We Do Things DifferentlyWelcome to another Smartkarma eBook-a showcase of selected Insights from the Smartkarma network.These eBooks are meant to be an illustration of the depth and breadth of research found on our platform-a snap

2、shot of what you can expect to see as a Smartkarma subscriber.All research on Smartkarmas platform is produced by independent Insight Providers.Almost half of the research coverage on Smartkarma is on small-and mid-cap firms,demonstrating a differentiated view of the market,which generally tends to

3、skew large-cap.Research on our platform spans 15 core content verticals,including Equity Capital Markets,Event-Driven,Macro,Forensic Accounting,Credit,and more.The unprecedented upheaval that COVID-19 brought to global markets has reaffirmed our conviction that there is true value in building and nu

4、rturing thriving networks that empower the distribution and exchange of insight.Thats why we leverage the online economy,applying this innovative mindset to capital markets.For a single subscription,Smartkarma users can consume all the research they need,just like Netflix enables viewers to watch un

5、limited hours of content.Our model ensures that research on our platform is objective and unbiased,independent and free from conflicts of interest.The platform determines appropriate pricing according to the quality and value of each research piece.This helps independent Insight Providers monetise t

6、heir research and incentivises them to produce truly high-quality,differentiated work that stands out from the rest of the market.In the following pages,you will be able to see for yourself a sample of the efforts of Smartkarma and the Insight Providers publishing on our platform.If you want more su

7、ch Insights delivered to you in real time on your desktop or mobile,visit .Research ReinventedSmartkarma unites Independent Research Providers,Investors,and Investor Relations in one network.2Thematic(Sector/Industry)Road to 5G:How toMake Money in 5GBy Mitchell Kim|31 Jul 2020EXECUTIVE SUMMARYIn thi

8、s report,we highlight the best money making ideas byidentifying the winners and the losers of the sectors in the 5Gvalue chain.For investors looking for 5G thematic ideas,we provide asnapshot of the sectors in the 5G value chain.To distill our ideas,wefocus on three positive factors:1)does 5G genera

9、te new customers orrevenue sources?2)does it lead to market share changes?And 3)arethe sectors in the upward cycle still in play?The sectors we like in the 5G context are Internet technologyplatforms,smartphones/devices,5G infrastructure vendors,PCBand small cell technology providers,and selective t

10、elecomoperators.We are bullish on Southeast Asian telcos but bearish onNorth Asian telcos.Our contrarian buys in the telecom sector are Advanced InfoService(ADVANC TB)and Globe Telecom(GLO PM).They operatein markets with low fixed broadband penetration and weak incumbentfixed broadband operators.5G

11、FWA(fixed wireless access)will allowthese operators to expand fixed broadband penetration and also gainmarket share.Avoid North Asia telecom operators.North Asian telecom stockslanguished because they did not generate sufficient returns on 3G and4G.5G is no different.5G provides low priced smartphon

12、e maker Xiaomi Corp(1810 HK)another opportunity to gain market share as did 4G,but it will notlead to total handset shipment growth for top brands,in our view.The best time to take a position in telecom equipment vendors ispre-launch and in the first two years of the new generationtechnology launch.

13、Zte Corp H(763 HK)is trading below its 10-yearmean P/E.Whats Original?We set out in this report to be different from others by avoiding amenu of stocks and the size of the markets in the 5G ecosystem and,instead,recommend several key thematic ideas distilled by analyzingRoad to 5G:How to Make Money

14、in 5GMitchell Kim3Mitchell KimGlobal TMT analyst with Asia ex-Japan focusFundamental equity research analyst with 20+years of both hedge fund and a bulge bracket sell-side experience.Has a reputation for rigorous analysis focusing on stock price drivers and providing differentiated/contrarian ideas.

15、Areas of Expertise Primary Asset Class:Equities Geography:Asia Ex Japan Countries:China,Hong Kong Sectors:Information Technology,Telecommunication ServicesContent Verticals Equity Bottom-Upmore in-depth the drivers of three key sectors to determine wherethe market is overly bullish or overlooking th

16、e opportunities orwhere the 5G factor has not yet been priced-in.We analyzed the stock price performances of these sectors toreview how they behaved during the 4G deployment to ascertainhow they may react to 5G.We conducted a proprietary analysis of the size of the potentialrevenue from billions of

17、IoT connections that the industry istouting in the long term.We provide a RoIC analysis of the Chinese telecom operators3G/4G investments to better understand why the Chinesetelecom operators invest less in 5G than the figures promotedby the governments or the industry research firms.We compare our

18、Capex forecasts with the industry projection toassess the opportunities and risks.DETAILTable of Contents1.Investment Rationale-The Three Pillars1.15G Value Chain2.Four Key Sectors:Technology,Devices,Vendors,Telcos2.1Technology service sector-The biggest long-term winner again2.25G Devices makers-No

19、t compelling except for market share gainers2.3Telecom Infrastructure Vendors-The Window is Still Open2.3.1 ZTE-Our Top Pick2.3.2 Ericsson2.4Telecom operators-Fixed Broadband is SexyRoad to 5G:How to Make Money in 5GMitchell Kim42.4.1 Southeast Asian Fixed Broadband Penetration Sensitivity Analysis2

20、.4.2 China&Korea 3G/4G RoIC Analysis-Fretting on Low Returns3Background:All about 5G3.1What is 5G?3.2Current 5G performance comparison with 4G3.35G Device status3.4Path to 5G3.5Status of 5G development3.65G pricing plans in China and South Korea3.7Infrastructure vendors-Huawei stunted by the US3.85G

21、 Subscribers and Capex in China3.8.1 Uncertain incremental revenue3.8.2 High cost is leading to 5G network sharing3.8.3.Cost per base station will decline rapidly like 3G/4G3.95G Applications3.10IoT connections projections-Gigantic numbers but revenues elusive4Valuations5Key Risks6Conclusion1.Invest

22、ment Rationale-The ThreePillarsWe provide an investment perspective by addressing the three keyquestions:1.Does 5G drive new demands and revenue opportunities?2.Does 5G change the competitive landscape?3.Which sectors are positioned to capitalize on the merits of 5G and thetiming?We wanted to be pra

23、ctical in our recommendations by applyingthe litmus test against the lessons from the past and translate industrypundits projections to actual revenue dollars to assess whether themarket is overly bullish or bearish.Our key thoughts:The sectors we like in the 5G context are Internet technologyplatfo

24、rms,smartphones/devices,5G infrastructure vendors,PCBand small cell technology providers,and selective telecomoperators.We are bearish on North Asia mobile operators.5G will have a bigger impact as a cheaper and better substitute forfixed broadband than as a revolutionary new mobile service.Ourcontr

25、arian buys are Advanced Info Service(ADVANC TB)and GlobeTelecom(GLO PM).They operate in markets with low fixed broadbandpenetration and weak incumbent competitors.5G FWA(fixed wirelessaccess)provides these operators the means to accelerate the fixedRoad to 5G:How to Make Money in 5GMitchell Kim5broa

26、dband penetration and also gain market share.(For upsidepotential,see Section 1.4.1:Southeast Asia Fixed Broadband MarketPenetration Rate Sensitivity Analysis.)We also like Indosat Tbk PT(ISAT IJ)but Indonesias 5G plan is currently unclear because of thegovernments undefined spectrum plan.Avoid Nort

27、h Asia telecom operators:China Mobile(941 HK),ChinaTelecom Corp Ltd(H)(728 HK),China Unicom Hong Kong(762 HK),SKTelecom(017670 KS),KT Corp(030200 KS),and LG Uplus Corp(032640KS).Our analysis shows that North Asian telecom operators did notgenerate sufficient returns on 3G and 4G investments.This is

28、likely tobe the case for 5G unless a new revenue stream could be found.Industry pundits project that demands for industrial application willgenerate significant new revenues,but our IoT connection revenuesensitivity analysis(see Section 3.10:IoT Connection Projections)shows that the revenue impact i

29、s still modest even if the telecomoperators serve the optimistic number of connections in the long term.5G gives Xiaomi Corp(1810 HK)another opportunity to gainmarket share as a low price smartphone leader as it did with 4G,but it will not lead to total handset shipment growth for top brands-Samsung

30、 Electronics(005930 KS)and Apple Inc(AAPL US),in ourview.The best time to take a position in telecom equipment vendors ispre-launch and in the first two years of the new generationtechnology launch.5G was launched at the end of 2019 in China andthe peak Capex cycle for China should be mid-2021.There

31、 is still timeto take a position in ZTE.ZTE Corp H(763 HK)is trading below its10-year mean P/E,while noting the US sanction overhang.We also believe PCB and small cell manufacturers as well as datacenter/cloud service providers are attractive ideas.However,we donot cover these sectors in depth in th

32、is report other than to highlighttheir participation in the 5G ecosystem.Shennan Circuits(002916 CH),Comba Telecom Systems Holdings(2342 HK),and data center namesare worth another look.In particular,we believe Comba is in a goodposition as the bulk of the long-term 5G coverage will be made usingsmal

33、l cells.We remain cautious on the optical fiber sector and China Tower(788 HK).The consensus view is that 5G will require 60-100%morebase station construction than 4G for nationwide coverage andexponential data usage growth will lead to surging demand for opticalfiber.However,severe price competitio

34、n in the optical fiber industrydue to over-supply and extensive fiber backhaul already owned bytelecom operators as well as 90%+fiber to the home(FTTH)coverageundermines that theme.They have been steadily investing inupgrading their backbone due to 4G already(more than 50%of Capexof Chinese telcos w

35、ere allocated to non-mobile network investmentsover the last five years.)Already 9.5 million base stations in China areinterconnected by the fiber backhaul.For China Tower,high growth inRoad to 5G:How to Make Money in 5GMitchell Kim6base stations does not mean corresponding demand for towers,and the

36、small cell space rental will be at a fraction of the lease rate for macrobase stations.We summarize our views on each sector in the ecosystem in Figure 1:SectorNear-term(6-12 months)Long-term(12-36 months)StocksTelecomoperatorsNegative high capex withlittle visibility on incrementalrevenue.Avoid Nor

37、th Asiaand favor Southeast Asia forfixed wireless access using5G.Positive for low fixed broadbandpenetrated markets;Neutral forNorth Asia.Positive AIS,Globe,PTIndosatNegative Chinese andKorean telecomoperatorsTowercompaniesPositive more towersneeded for nationwide 5Gcoverage,but small cell siterenta

38、l revenues aresignificantly smaller thantowers.Negative demand for moretowers declines after a full 5GcoverageChina Tower(788 HK),Bharti Infratel(BHIN IN),Sarana MenaraNusantara(TOWR IJ),Tower BersamaInfrastructure(TBIG IJ)Networkoptimization/small cellprovidersPositive demand foroutside plant tower

39、construction will continue tillthe end of 2020.Networkoptimization demandremains brisk but willsubside by the year-end.Small cell demand to rise in2021 and beyond.Negative typically,positivesentiment on these stockssubsides once the nationwidenetwork buildout is complete.However,small cell buildout

40、isexpected to continue over thelong term.China CommunicationsConstruction(1800 HK),Comba TelecomSystems Holdings(2342HK)Fiber OpticsNegative much of theChinese fiber buildout hasbeen complete with anFTTH ratio of over 95%.Most of the Chinese telcoscapex will focus on buildingout 5G network over the

41、nextfew years.Oversupplypressure on pricing.Negative Demand in China willdepend on data usage related to5G,but no catalyst for demandfrom telecom services is expectedfor the foreseeable future.Yangtze Optical FibreAnd H(6869 HK),Hengtong Optic Electric(600487 CH)Data CentersNeutral demand for datace

42、nters in the near-term willbe limited as 5Gapplications still evolving.Positive demand for datacenters in the long term looksstrong as not only subscribers butalso a machine to machineconnections will consumer datatraffic.Datacenter revenuesclimbed with 3G and 4G in 2009/10 and 2013/14.They will lik

43、elysee another lift with 5G.Gds Holdings(Adr)(GDSUS),Beijing SinnetTechnology A(300383CH),21Vianet Group(VNET US)PCB/HDIPositive demand of PCB/HDI for 5G networkequipment is high especiallyduring the build-out stage.Negative from 5G perspective,demand will subside oncenationwide buildout is complete

44、.However,PCB/HDI are needed for5G devices in the long term.Shennan Circuits(002916 CH),ShengyiTechnology(600183CH),UnimicronTechnology(3037 TT)EquipmentvendorsPositive ZTE and Huaweiare major players anddominant vendors for China.However,both are caught ina political standoff betweenthe US and China

45、.Ericssonhas small contracts withChinese telcos but Nokia isless present.Negative typically euphoriabuilds before the networkdeployment.Unless telecomoperators realize significantincremental 5G revenues,5Gcapex will unlikely to rise beyondexpectation.Zte Corp H(763 HK),Huawei(Not listed),Fiberhome T

46、elecomTech Co A(600498 CH),Ericsson(Lm)Tel-Sp Adr(ERIC US),Nokia OYJ(NOK US)Chip makers&TechnologyNeutral demand for 5Gchips for devices willcertainly rise over time.Currently,there is notenough 5G devicesavailable.Qualcomm ownsCDMA technology,a coretechnology for 5G.Positive Demand for not onlymobi

47、le devices but also for FWA(Fixed Wireless Access)for homeand commercial applications willdrive demand.Qualcomm Inc(QCOMUS),Advanced MicroDevices(AMD US),IntelCorp(INTC US)Road to 5G:How to Make Money in 5GMitchell Kim7DevicesDemand for 5G mobilehandsets will remain muteduntil the benefits are reali

48、zedby consumers.FWA devicescould see a surge in demandfrom operators but thevolume is unlikely tosignificant.Long-term demand for 5G mobiledevices will accelerate over thenext two years as operatorsdeploy standalone(SA)network.Samsung and Apple shares didnot see a significant lift with the4G deploym

49、ent.Upgraded models(selling price)had a greaterimpact.Samsung Electronics(005930 KS),Apple Inc(AAPL US),Xiaomi Corp(1810 HK)InternetPlatformsNeutral no near-termdemand surge expected.Positive new verticals as well asexisting platforms will benefitfrom ultra-fast speed of 1Gbps.New applications such

50、as AI,AR,autonomous driving,andtelemedicine could see the birthof new verticals.Tencent Holdings(700HK),NetEase Inc(NTESUS),Alibaba Group(BABA US),JD.com Inc(ADR)(JD US),iQIYI Inc(IQ US),LINE Corp(ADR)(LN US),Facebook Inc A(FB US),Whatsapp,YouTube,Tik TokFigure 1:Summary View of Each Sector1.1 5G Va

51、lue ChainWe broadly define the following sectors and their participants as either adirect or indirect play in 5G:TelecomTower companiesNetwork optimization/small cell providersFiber optics manufacturersPCB and HDI playersEquipment vendorsChipmakersDevice makersTechnology companiesThe four sectors us

52、ually move first as they are involved in a network pre-build out as shown in Figure 2.The five other sectors typically benefit nextand followed by Internet platforms and small cell vendors.Road to 5G:How to Make Money in 5GMitchell Kim8Figure 2:5G Value Chain.Source:Mitchell Kim2.Four Sectors in Foc

53、us:Internet,Devices,Vendors,Telcos2.1 Technology service sector-Thebiggest long-term winner againIn this report,we will not cover this sector extensively as the existing namesare already well known.However,we highlight that this sector is expected tobe the largest beneficiary of the new generation o

54、f technology in the long-term,which we define as 12-36 months.While 4G services provided little liftto telecom stocks broadly,Internet platforms such as Netflix,iQiyi,Tencent,Alibaba,Facebook,SNAP,Line,and numerous others across multipleverticals were able to capitalize on the power of the new techn

55、ology.Tencent enjoyed explosive growth as more attractive graphics and the abilityto play games on smartphones among other factors driving demand.Alibabas e-commerce transaction growth was rejuvenated in 2016 as onlineshoppers migrated from the PC to mobile platforms.From the stock valuation perspec

56、tive,the telecom market cap during the 4Gera remained virtually unchanged while those of the Internet platforms haveexpanded many folds.This trend is not likely to change with 5G,in our view.The value realization will likely remain with 5G applications and internetplatforms rather than the telecom s

57、ervice operators,even though thetelecom sector will have to bear the burden of the network investments.Unless investors can see concrete 5G revenue possibilities to justify 5GRoad to 5G:How to Make Money in 5GMitchell Kim9investments,5G will fail to be a catalyst for the telecom service sector.If so

58、,lower 5G Capex spending will be better for the telecom sector valuation,inour view.Figure 3:Telecom Operators Have Struggle to Reap the Benefits ofTheir Network Investments While the Internet/Tech Giants GrewExponentially in the Last Decade Source:GSMA IntelligenceNote:Annual figures based on fisca

59、l year reporting periods.Revenue increase at2018 constant forex.We remain positive on Internet platforms as they will reap the benefitsof a 5G upgrade,in our view,but we believe the positive operationalimpact on the Internet stocks will be evident only be in the long-term.Over time we expect to see

60、more applications leveraging not only the powerof 5G but also incorporate VR/AR across many sectors.We expect to see agreater number of internet users,as well as the intensity of usage as 5G,willprovide augment the current fixed broadband coverage in a more cost-effective way.Among the Internet plat

61、forms,games and video platforms are thedirect beneficiaries and e-commerce,indirect,in our view.Tencent willbenefit as online/mobile games addressable market will expand with VR/AR(Virtual Reality/Augmented Reality)incorporated into the next generationof online games as well as eSports.Similarly,Ali

62、baba and JD.com arepositioned to benefit from an enhanced medium for user shoppingexperience with the new technology.We note that with 4G,an increasingnumber of new buyers entered Alibabas ecosystem through its videoplatform,Youku Tudou,and the bulk of the online shopping transactionoccurs through v

63、ideo bloggers.Such experience will be enhanced with VR/AR devices,in our view.Road to 5G:How to Make Money in 5GMitchell Kim102.2 5G devices makers Notcompelling except for market sharegainersContrary to the common view,we do not believe the smartphone sectoris a significant beneficiary of 5G.5G upg

64、rade will not lead tosignificant handset shipment growth,in our view.Therefore,investorslooking at smartphone device manufacturers as a 5G thematic play could bein for a disappointment.However,5G could lead to a powerful market sharegain story for some of the leading Chinese smartphone makers.Among

65、thegroup,we believe Xiaomi could surprise on the upside on handsetssold.While the mobile network generation upgrades shorten the handsetreplacement cycle thus,this perception could lead some investors tobelieve there will be a surge in the overall handset demand theoverall handset shipment will see

66、limited growth,in our view.This hasnot been the case for 4G(handset shipment growth slowed as shown inFigure 4)and such network upgrade has not translated into share pricegains.This is because the demand for the replacement devices is offset bythe decline in new subscriber handset demand as most of

67、the global mobilemarkets are becoming saturated.Without new non-handset devices drivingthe revenue growth of consumer device manufacturers,we believe the upsideis limited for these players even as telecom operators roll out the new 5Gnetworks globally over the next 12-24 months.But there is an upsid

68、e for players with potential for market share gain.Xiaomi is attractive as a market share gain story.While it is difficult forSamsung or Apple to provide upside surprise on the total smartphoneshipment as they are positioned in the premium device segment,as thelower-cost provider,Xiaomi could use 5G

69、 as a springboard to gain marketshare.Xiaomi did just that with 4G(the company was not listed in 2014,theyear China Mobile launched its 4G service.)The market share story is apowerful catalyst,in our view.Road to 5G:How to Make Money in 5GMitchell Kim11Figure 4:Mobile handset shipment continued to s

70、lowed despite the 4Glaunch in 2014One potentially upside case for device manufacturers is in thedevelopment of new industrial application devices,such as telemedicinedevices,autonomous driving chipsets and software systems,and telemetrydevices.However,we believe it is more prudent to wait for early

71、signs ofthese developments rather than taking a leap of faith.We believe telecom operators will face greater challenges trying topersuade consumers to switch from 4G to 5G.Whereas 4G was able tooffer a clear value proposition to those consumers seeking faster connectionand download speed compared to

72、 the frustrating slow speed of 3G,5G willoffer a less compelling value proposition,in our view.Currently,the majordifferences between 4G and 5G for the consumers are faster speed and lowlatency,both are difficult to discern by most consumers.If so,consumerswill have less incentive to switch to 5G,an

73、d consequently,demand for 5Gdevices will be more subdued than in the case of 4G,at least in the near-term.If history is any indication,5G handset unit sales volume will likelyhave a minimal positive impact on the stock price of devicemanufacturers unless the device makers introduce new innovative de

74、vicessuch as AR/VR that contribute to a renewed growth or there is a shift inmarket share(similar to how wearables provided a catalyst for Apple in thefirst case.)We currently have limited visibility on either of these scenarios.For this reason,we prefer the market share gain story of Xiaomi(Huaweia

75、lso will likely gain market share but the company is not listed and itcurrently faces a greater political risk.)Road to 5G:How to Make Money in 5GMitchell Kim12Global handset Shipment Volume and Market ShareShipment by Vendor(mil units)2010201120122013201420152016201720182019 1Q20Samsung281314385444

76、39332030632129529658Huawei244147537010413315120324149Apple478913015119122621621520919328Xiaomi7196171539212212628OPPO8511211911923Others1,2451,3311,1771,1401,16370370253360756690Total1,5971,7751,746 1,807 1,879 1,424 1,495 1,4241,5551,541275Market Share2010201120122013201420152016201720182019 1Q20Sa

77、msung18%18%22%25%21%23%20%23%19%19%21%Huawei1%2%3%3%4%7%9%11%13%16%18%Apple3%5%7%8%10%16%14%15%13%13%10%Xiaomi0%0%0%1%3%5%4%6%8%8%10%OPPO0%0%0%0%0%0%6%8%8%8%8%Others78%75%67%63%62%49%47%37%39%37%33%Figure 5:Global handset shipment volume and market share.Source:IDC,Gartner Group*Smartphones only fro

78、m 2015(excludes featurephones)Out of the three smartphone names highlighted in this section,webelieve 5G will have the biggest impact on Xiaomi.While there is alimited shipment volume upside for premium smartphone makers,for a mid-price maker like Xiaomi,an increase in the unit shipment will be a ca

79、talystsince it indicates the company winning market share.In the case of Xiaomi,4G provided an opportunity to gain marketshare in the competitive smartphone market(see Figure 5.)Xiaomiwent from less than 10 million handsets(feature and 3G)to 100 millionunits shipped in 2018,laying the foundation for

80、 the company going public.Xiaomis smartphone unit sales paused in 2016 but its market share gainscontinued in 2017 and 2018.In 2019,the company saw only 2.7%YoYgrowth in smartphone sales and its share price declined 17%for the year2019.However,we believe 5G will be a catalyst for the mid-price smart

81、phonemaker,Xiaomi,and therefore such underperformance provides a buyingopportunity,in our view.Already we are seeing rejuvenated growth in 1Q20,which led to a stronger performance YTD in 2020,but we believe there ismore upside as the company continues to gain market share through 5G.Road to 5G:How t

82、o Make Money in 5GMitchell Kim13Figure 6:Xiaomi Annual Share Performance.Source:IDC,GartnerGroup,Company DataThe stock had been under pressure since the IPO in July 2018 due tothe company missing the markets lofty expectations.However,the stockis up 40%YTD in 2020 due to stronger revenue growth of 2

83、7%YoY in theMarch quarter 2020 and the June announced share buyback plan of up to10%of its outstanding shares,equivalent to USD4.3 billion.YearPriceAnnual%ChangeCumulative Return%2020 YTD15.1040.07-10.12201910.78-16.56-35.83201812.92-23.10-23.107/9/18 IPO16.80IPOFigure 7:Xiaomi Annual Share Performa

84、nce.Source:FactsetA closer look at Samsung share price performance indicates no visibleimpact from the 4G upgrade cycle in 2014 onwards(Figures 8&9)Thestock only outperformed in 2016,2017,and in 2019 for most of thepast decade,and the key stock price driver of those two years was mostlydue to increa

85、sed demand for its semiconductors and display products andless so from mobile phone sales.Certainly,consumers upgrading to 4G hadhelped to shorten the replacement cycle,but it was insufficient to sustainthe overall growth.Samsungs annual mobile handset unit sales fell yearafter year since hitting th

86、e peak in 2013.We believe 5G will have minimalimpact on Samsung shares.Figure 8:Samsung annual share price performance.Source:FactsetDatePrice%ChangeAnnual%ReturnCumulative Return%Road to 5G:How to Make Money in 5GMitchell Kim1407/24/2054,200-2.87-1.49-1.4912/30/1955,80044.1948.4348.4312/28/1838,700

87、-24.06-21.64-21.6412/28/1750,96041.4043.9243.9212/29/1636,04043.0245.3245.3212/30/1525,200-5.05-3.46-3.4612/30/1426,540-3.28-1.82-1.8212/30/1327,440-9.86-8.93-8.9312/28/1230,44043.8644.6444.6412/29/1121,16011.4912.0812.0812/30/1018,980Figure 9:Samsung Annual Share Price Return.Source:FactsetFigure 1

88、0:Samsung Smartphone Shipment Peaked in 1Q14.Source:StatistaApples stock drivers were not smartphone unit sales numbers since2014.In fact,its shipment unit sales growth rate declined every yearsince 2015.Apples share price appreciated more than 1.5x from 2010 to2014 largely due to a unit sales volum

89、e and a revenue CAGR of 42%.We,therefore,attribute the share price gains partly to consumers using the 3Gupgrade as an opportunity to replace their mobile handsets with the iPhone(introduction of iPad was also a catalyst.)However,4G was not a visible catalyst.Note that Apple stock priceretreated in

90、2015 even though the unit sales volume growth was higher than10%.In 2017,its share price outperformance continued,largely because ofthe company resumed growth and the great anticipation for ASP increasewith the iPhone X introduction in November 2017.We note that thecompanys innovative products such

91、as wearables and home devices(e.g.,Apple Watch,Air Pods,Echo)have been the key driver.Overall,ApplesiPhone sales revenue CAGR from 2012 to 2019 was just 8%(6%for unitvolume CAGR).Rather,Apples net profit growth was the driver(CAGR from2010 to 2019 was 16.6%.)Road to 5G:How to Make Money in 5GMitchel

92、l Kim15With Apple focused on the high-end market,we believe 5G will not be acatalyst for the stock.Instead,we believe Apple will continue to focus onincreasing its ASP and new products like Airpods and Apple Watch.Considering this,Xiaomi is really the only potential market sharewinner that is listed

93、,in our view.Fig 11:iPhone sales volume did not drive up Apple shares after 2014.Source:Factset,IDC,Gartner GroupFigure 12:Apples quarterly handset shipment(3Q07 to 3Q18).Source:Gartner Group,StatistaRoad to 5G:How to Make Money in 5GMitchell Kim162.3 Infrastructure Vendors-TheWindow is Still OpenWe

94、 are modestly positive on the 5G vendors in the near-term,but webelieve the clock is ticking.These vendors typically are the earlybeneficiaries of a new generation network buildout prior to the servicelaunch and in the first couple of years of commercial service as operatorsinvest to expand the netw

95、ork coverage.However,once nationwide coverageis achieved,operators Capex focus on adding capacity,and,therefore,theiroverall capex spending declines.Therefore,for these vendors,2020 and 2021are two crucial years of 5G revenue opportunities.We are still at the early stage of 5G commercial launches in

96、 China andSouth Korea but we believe the vendors revenue growth will accelerate in2020 and 2021 before they start to decelerate in 2022.Chinese and Koreanoperators are expected to have nationwide 5G coverage by the end of 2020and more robust coverage by 2021.We favor ZTE and Ericsson as a 5G China p

97、lay.Nokia has limitedcontracts with China,albeit,China has threatened to terminate all contractswith the two European vendors should any of the EU countries bar Huaweifrom supplying 5G infrastructure.ZTE has faced its share of backlash fromthe Trump administration,but the US focus appears to be on H

98、uawei.We note that Huawei is a private company and Fiberhome is aShanghai-listed company that focuses more on ancillary and datanetwork equipment.Huawei is also the second-largest smartphonecompany after Samsung with 65%of its revenues coming fromsmartphones.It is also the largest 5G infrastructure

99、vendor along withEricsson.The company has been cited as being a national security risk byPresident Trumps Executive Order enacted in May 2020.The UK andCanadian telecom operators have terminated their contracts with Huaweisince then.As a result,we believe Ericsson and Nokia will continue to bebenefi

100、ciaries in 2020.Telecom Eq as%of Total Revenue2019Huawei35%ZTE73%Ericsson68%Nokia78%Fiberhome63%Figure 13:Telecom Eq as%of Total Revenue.Source:FactsetOur historical price analysis of Ericsson and ZTE support our view thatpre-launch and the first two years are the best time to own the stocks.This is

101、 because a bulk of the revenues are generated during this period.BothZTE and Ericsson shares reflect the positive 4G impact from 2013 to 2015only to take a steep fall as revenues declined(Figures 14A and 14B.)Road to 5G:How to Make Money in 5GMitchell Kim17Figure 14A:ZTE Annual Share Price Performan

102、ce vs Revenue Growth.Source:FactsetFigure 14B:Ericsson Annual Share Price Performance vs RevenueGrowth.Source:Factset2.3.1 ZTE:Our top pickWe believe ZTE is on a course to a rejuvenated growth in 2020,whichwill drive its share price barring any strong geopolitical setback.AfterZTE shares 2x outperfo

103、rmance in 2009,3G did not provide much morecatalyst.The stock rose 20%in 2013 in anticipation of 4G deployment evenRoad to 5G:How to Make Money in 5GMitchell Kim18though 2013 revenue growth was-8%.The 4G effect petered out in 2015,twoyears after the 4G launch by China Mobile.Share price doubled in 2

104、017 asthe company settle the suit with the US by pleading guilty and as revenuegrowth rebounded after a year of decline in 2016.ZTE again faced a US banin early 2018 only to have it lifted by President Trump in June 2018,whichled to a revenue rebound in 2019,in our view.2.3.2 EricssonAfter a lacklus

105、ter sales growth during the 3G era,the stock continued tolanguish until 2013 when sentiment improved as the market anticipated forthe 4G buildout catalyst.However,the 4G effect petered out and revenuescontinued to decline from 2014 to 2016.5G euphoria and the US ban on ZTElifted the stock in 2018 bu

106、t nearly flat in 2019.The stock however is abeneficiary of the US-China trade strain.The stock price appreciated in2020 partly due to the ban imposed on Huawei by the US and UK,in ourview.2.4 Telecom Operators-FixedBroadband is SexyThe best 5G thematic long idea for the telecom operators is the fixe

107、dwireless access play,not mobile,in our view.We believe speed and lowlatency alone are not an attractive value proposition for consumers,notwhen 4G already provides satisfactory speed for most consumerapplications.In contrast,there are many consumers in Southeast Asia withno access to fixed broadban

108、d at home and must rely on 3G or 4G handsets orCPE(Customer Premise Equipment).Fixed broadband is under-penetratedcompared to the mobile penetration in these markets because extendingfiber coverage for the less densely populated areas or those in a ruggedtopography have been are too costly for opera

109、tors.5G is a game-changerbecause it is more economical and faster speed than most broadbandservices other than FTTH,in our view.We are positive on the fixed broadband markets with low penetration,namely,Thailand,the Philippines,and Indonesia.Of the three markets,we like Thailand and the Philippines

110、as the key operators have alreadylaunched the FWA service.We keep Indonesia on the radar screen but theoperators have yet to finalize their 5G plans and the regulators have yet tofinalize the 5G spectrum plan.Road to 5G:How to Make Money in 5GMitchell Kim19Figure 15:AIS launched 5G FWA in July 2020.

111、Source:Company DataAIS(Advanced Info Services)and Globe Telecom stand out as attractive5G long ideas.AIS is a leading mobile carrier in Thailand but is a distantthird or fourth-largest fixed broadband behind the leader True(China Mobilehas an 18%equity stake in True.)By using 5G as an FWA(Fixed Wire

112、lessAccess)similar to how Verizon Communication in the US is using,we believeAIS has an opportunity to gain market share in the Thai fixed broadbandmarket.Globe is in a similar position competing against the incumbent PLDT.We believe Globe offers an interesting value proposition.Given that 5G FWAwil

113、l be cheaper running a fiber,Globe could become a market disruptor.Keepin mind that the Philippines households on a basic income of$9-12 a daymay not be able to afford fiber pricing plans,but they could share 5Gwireless packages,which could be as low as PHP1,899($36)per month for 20Mbit/s and PHP2,8

114、99($55)for 100 Mbit/s.2.4.1 SE Asia Fixed Broadband PenetrationSensitivity AnalysisBased on our sensitivity analysis(Figure 16),AIS and Globe have a highupside:for every 10%incremental household penetration,Globes revenuerises 27%and AIS 8%.In an optimistic case assuming a fixed broadbandpenetration

115、 rate rising to 90%,there is a 214%upside to Globes revenue and33%upside to AIS.Sensitivity Analysis on Potential Upside to Fixed Wireless AccessPhilippinesNo of Households for every 10%penetration(000s)2,422ARPU PHP1,373Annual Revenue(PHP mil)39,905%of Globe total revenue27%Revenue 90%penetration(P

116、HP mil)319,239Road to 5G:How to Make Money in 5GMitchell Kim20Globe Rev 2019(PHP mil)149,010Upside to Revenue214%ThailandNo of Households for every 10%penetration(000s)2,149ARPU THB539Annual Revenue per 10%Penetration(Thai Baht mil)13,899%of AIS total revenue8%Revenue 90%penetration(Thai Baht mil)59

117、,767AIS revenue 2019(Thai Baht mil)183,432Upside to Revenue33%Figure 16:Sensitivity Analysis on Potential Upside to Fixed WirelessAccess.Source:Company data,Euromonitor,IDC2019 Subscribers(000s)Household Penetration(%)Indonesia10,44714.5%Thailand10,10047.0%Philippines2,1618.9%Taiwan5,71480.8%South K

118、orea21,906105.3%China397,72692.3%Figure 17:Asia Broadband Market Penetration Rates.Source:ITUEuromonitor,Companies2.4.2 China&Korea 3G/4G RoIC Analysis-Fretting on Low ReturnsWe believe North Asian telcos face significant 5G risks because they aresolely looking at 5G as a faster mobile solution.Sout

119、h Korea and Chinaare two of the highest penetrated fixed broadband markets in the world withover 95%of the household subscribing to broadband,mostly FTTH.As wehighlight in our 5G section,we believe the returns for 5G will be challengingwithout incremental revenues coming from the new industrial usag

120、e.We,therefore,take a cautious stance on all the telecom operators in the region:China Mobile,China Unicom,China Telecom,SK Telecom,KT,and LG UPlus.We believe there is a risk of 5G being value destructive if incrementalrevenues are not generated,especially for the smaller operators.Thiswas evident i

121、n China.Our analysis of RoIC by technology finds that onlyChina Mobiles rate exceeded its cost of capital for 4G(Figure 18)and this isonly because we are not accounting for the cannibalization effect.For thisreason,we remain cautious on the Chinese telco names.China 3G,4G ROIC Analysis4G Return20142

122、0152016201720182019Operating Margin36%29%27%26%28%28%Op Profit after Tax15,71827,14153,54767,71475,70370,738Road to 5G:How to Make Money in 5GMitchell Kim21ROIC-4G9%8%11%11%10%9%China Mobile10%10%15%15%14%11%China Unicom3%1%1%4%4%0%China Telecom2%3%5%5%5%5%3G Return201020112012201320142015Operating

123、Margin46%42%40%38%36%36%Op Profit after Tax4,29611,09818,13736,15336,43026,764ROIC-3G5%5%6%9%8%5%China Mobile6%7%7%14%12%9%China Unicom1%1%3%4%4%2%China Telecom5%5%6%7%7%4%Figure 18:China 3G,4G ROIC Analysis.Source:Company data,MKestimatesFigure 19:SKT ARPU declined even after the 4G launch.Source:C

124、ompanydataSouth Korea fared no better.After investing in the 3G networks from 2010to 2013,Korean operators also upgrade their network to 4G in 2014.Despitethe upgrade to 4G and expending significant capital for handset subsidies,SK Telecom only saw an ARPU lift in 2013 and 2014 before the ARPU decli

125、neresumed.Road to 5G:How to Make Money in 5GMitchell Kim22Figure 20:RoIC generally decline despite the 4G launch.Source:Factset3.Background:All about 5G3.1 What is 5G5G is the fifth generation of mobile network technology that will enable anultra-fast broadband transmission speed up to 10Gbps with a

126、s low latencybelow 1 millisecond.The new technology will enable new applications forconsumers as well as for commercial use as shown in Figure 21.Figure 21:Potential new applications with 5G:speed and latencyadvantages.Source:Ernst&Young,GSMARoad to 5G:How to Make Money in 5GMitchell Kim23To offer 5

127、G,a new spectrum,radio interface(RAN Radio AccessNetwork),and core network are required.In order to fully harness the5GNRs performance hence,to be in a position to offer new services thatmany are talking about including autonomous driving,smart city,smartfactories,and telemedicine as examples-new sp

128、ectrum over 6GHz(milliwave)spectrums are required and the networks need to adhere to boththe SA 5GNR and the 3GPP core network architecture for 5G Core(5GC)specifications.Figure 22:5G:What you get and what you need to provide 5G.Source:GSMA5G will offer significant technological advancement compared

129、 to 4G(Figure22),but we are uncertain how much consumers are willing to pay for the newtechnology.Anecdotally,4G did not lift the overall mobile service ARPUglobally as operators hoped because of intense competition.We believe thiswill again be the case for 5G if operators do not offer a compelling

130、valueproposition to consumers.Speed and low latency will not be sufficientbecause current 4G subscribers find 4G to be adequate for existingapplications.It is widely accepted that 5G could lead to an incrementalrevenue stream from commercial applications for telecom operators.Whilewe are cautiously

131、optimistic on this front,we believe any measurablerevenue stream will not be visible for the next 24 months.3.2 Current 5G performancecomparison with 4GBased on the latest performance comparisons measured in April 2020,operators globally are experiencing 2 to 20 x 4G speeds(See Figure 23.)Road to 5G

132、:How to Make Money in 5GMitchell Kim24Figure 23:Speed comparison between 4G and 5G.Source:Opensignal3.3 5G Device StatusInitially,smartphones will be the primary 5G devices,in our view.5Gsmartphones currently are limited in types and are priced at a premium to4G LTE smartphones.Currently,many of the

133、 Chinese 5G subscribers arethose subscribing to the faster speed of 5G but still using 4G handsets.5G smartphones are likely to offer 4K or 8K displays(although we wouldargue that the perceptible difference to the human eye is negligible).In thelong-term,we may see smartphones supporting AR and 3Dme

134、asurements.Qualcomm has already introduced a 3GPP-compliantSnapdragon X50 for 5G mobile phones.Samsung Galaxy S10 5G and LG V50ThinQ 5G already uses the Snapdragon chips.Currently,there are limited models of 5G handsets available.The availabilityof handsets is key to stimulating 5G service take-up.I

135、n the US,8 differenthandsets were available for purchase at$700 to$1,000.(See Figure 24)InChina,20+different models were available in 1H20:ZTE Axon 10 Pro 5G,Huawei Mate 20X 5G,Huawei Mate 30 series,Huawei Mate X(foldable),Honor V30 series,China Mobile Pioneer X1,VIVO iQOO Pro 5G,VIVO NEX 35G,Samsun

136、g Note 10+5G,Xiaomi Mi 9 Pro 5G,Xiaomi Mi 10 Lite,Mi Mix 35G,Huawei Nova 6 and OPPO Reno3 Pro.According to the China Mobile2020 Terminal Product Plan,5G smartphone unit sales are expected toexceed 150 million in 2020,with the device price dropping to 1,000-1500yuan($145$218)by the fourth quarter of

137、2020.Road to 5G:How to Make Money in 5GMitchell Kim25Figure 24:5G Smartphones Offered in the US.Source:CNETBesides the handsets,we expect industrial and home IoT devices to becomemore readily available.Currently,some personal hotspot router and CPE(customer premise equipment)are available mainly as

138、an access device forFWA service operating under a different spectrum.(Fig 25)Figure 25:Current and Future Availability of Devices by Spectrum.Source:Ericsson mobility reportRoad to 5G:How to Make Money in 5GMitchell Kim263.4 Path to 5GThe road to 5G will follow two different paths:Standalone(SA)and

139、non-Standalone(NSA).Most telecom operators are following the NSA path firstto further leverage their 4G LTE before seeking to deploy the SA version.Thestandalone,or 5G New Ratio(5GNR),will be based on a completely newnetwork structure.5GNR will be a new wireless radio interface to supportsubstantial

140、 improvements in network throughput,efficiency,and capacity.The global mobile communication standards organization 3GPP released the5GNR for NSA in December 2017,and for SA in June 2018.Because of thesuperior data throughput,in some countries,telecom operators will use 5Gto augment or introduced as

141、a cost-effective FWA(Fixed Wireless Access)service for broadband purposes(Verizon has embraced 5G FWA in the US.)We believe 5G networks will evolve just as 4G networks have done.Initially,most telecom operators will launch the NSA version to minimize theinvestments and maximize the coverage using th

142、e 4G macrocells.However,in due time,some as early as 2021,operators will deploy a SA version to beable to offer commercial applications.The main domains of the 5G networkare:1)RAN,2)transport and mobile core,3)control&observability,and 4)management orchestration.Figure 26 illustrates the difference

143、in thenetwork architecture of 4G vs.5G using KTs network architecture.Figure 26:Difference in 4G vs 5G network architecture:KT Corpexample.Source:Netmanias,KT CorpRoad to 5G:How to Make Money in 5GMitchell Kim273.5 Status of 5G deploymentAs of February 2020,NSA 5G networks have been deployed in 378

144、citiesacross 34 countries.South Korea,China,and the US are the top threecountries based on the number of cities covered.Figure 27:129 operators in 12,920 cities offer 5G commercially around theworld.Source:OoklaChina launched commercial 5G service in November 2019 and hasmore than 100 million 5G sub

145、scribers at the end of June 2020-representing 7%of total mobile subscribers-with only China Mobileand China Telecom reporting 5G subscriber numbers.According to MIIT(Ministry of Industry and Information Technology),86 million 5Hhandsets have been shipped in China.Operators have informed us thatmajor

146、ity of their 5G subscribers are still using 4G LTE handsets to takeadvantage of faster speed and greater data usage bucket plans.Chineseoperators built 257,000 5G base stations in the first half of 2020,perMIIT,bringing to the total 5G base stations to 410,000.Chineseoperators are targeting to reach

147、 550,000 base stations by the end of theyear to have a nationwide coverage(full coverage of all prefecture of330 cities),with China Unicom and China Telecom building out 110,000and 140,000 base stations,respectively,which they will share,andChina Mobile building out 300,000.South Korean operators la

148、unched commercial 5G services in April2019,and their 5G networks currently cover 85 of the 100 cities.Theyhave already installed 115,000 5G base stations across the country.Thegovernment pledged investments of$26 billion to establish a“fully-fledged 5G environment”by 2022.There are more than 7 milli

149、onsubscribers as of May 2020.In Thailand,AIS,the largest Thai mobile operator,announced itsUSD1.2 billion 5G investment plan for 2020 to cover 13%of the Thaipopulation.This is an accelerated coverage plan due to the need for 5Gin part to respond to COVID-19.AIS has launched 5G services covering158 h

150、ospitals in Bangkok and other cities to provide telemedicine andfor the operation of robots to minimize contact between doctors andpatients.Robots are used for interactive communications with patientsand used to deliver food and medicine to patients.Road to 5G:How to Make Money in 5GMitchell Kim28In

151、 the Philippines,Globe Telecom launched 5G FWA service in June2019 and is looking to launch the mobile 5G in the coming weeks.PLDT has decided to delay the launch from mid-2020 to either 4Q20 or1Q21.Clearly,Globe Telecom has been handed a clear head start,andwe believe the company will leverage its

152、5G networks to gain marketshare and further penetrate the fixed broadband market,which couldprovide a sizable incremental revenue opportunity.In Indonesia,it is unclear when 5G will be launched.The keychallenge is the insufficient spectrum,and the government has yet toclarify its spectrum allocation

153、 plans.The Communication andInformation Minister Johnny G Plate said that the country only has737MHz of spectrum available for mobile when 2042MHz is needed toprovide 5G.The government will look to free the 3.3GHz-3.4GHz bandfor 5G and auction the milliwave spectrum,possibly starting with28GHz,accor

154、ding to Jakarta Globe.Another challenge for Indonesiahas been the unfavorable physical network buildout environment.There are 6,000 inhabited islands across 1.9 million sq km,which makesthe backhaul buildout difficult and costly.However,in 2019,theIndonesian government invested a USD1.5 billion in a

155、 Palapa Ring a35,000-km fiber ring across the country.Singapore plans to launch initially in 2021 and cover half of the islandwith 5G networks by the end of 2022 and nationwide by 2025.BothSingtel and the joint venture of Starhub and M1 have selected Nokia/Ericsson for nationwide coverage,while TPG

156、selected Huawei forsmaller coverage.The key hurdle to launching nationwide coverageearlier is the limitation of the spectrum in the 3.5GHz band,which iscurrently used for satellite communications by other countriesincluding Malaysia.3.6 5G Pricing Plans in China andSouth KoreaInitial 5G monthly plan

157、 prices in China,Hong Kong and South Korea wereset at a lower price than existing 4G(although no contract is required for 4G)in China.SK Telecoms 4G tariff is more expensive than its 5G plans eventhough the 4G plans include tethering and family sharing up to 30-40GB.While there is potential for pric

158、e increase in the future,we have yet to seeprices rising without a solid value proposition.The initial pricing planssupport our view that 5G aimed at mobile consumers will not lead to ARPUincrease.We believe that early 5G subscribers will subscribe to 5G plans thatmay be higher than the weight avera

159、ge ARPU but the migration does notlead to ARPU enhancement because they tend to be early adopters andhence are most likely already high ARPU generating subscribers.To realizeincremental revenues from 5G,operators will need a commercial revenuestream,in our view.Road to 5G:How to Make Money in 5GMitc

160、hell Kim29OperatorMonthly Price(local)*Price(USD)Data Package GB/MoMin Speed(Mbps)ChinaAll ThreeOperators12818.0330500All ThreeOperators59884.233001,000China Tel 4G*13018.3120100SouthKoreaSK Telecom5G Slim55,00045.8695G Standard75,00062.532005G Prime89,00074.21Unlimited4G100,00083.38Unlimited*with a

161、 24-month contract,China Tel 4G is for no-contract prepaid*30GB tethering,40GB sharingFigure 28:5G pricing in China and South Korea.Source:Company DataFigure 29:China Mobile(HK)5G Plans(top)and China Mobile(HK)4GPlans(bottom).Source:Company website3.7 Infrastructure Vendors HuaweiStunted by the USCu

162、rrently,nine system vendors provide 5G radio hardware and 5G systemsto carriers:Altiostar,Cisco Systems,Datang Telecom/Fiberhome,Ericsson,Huawei,Nokia,Qualcomm,Samsung,and ZTE.Road to 5G:How to Make Money in 5GMitchell Kim30Huawei is one of the most active equipment vendors.Huawei has beenawarded 91

163、 commercial 5G contracts and shipped over 600,000 5GMassive MIMO Active Antenna Units(AAUs)as of February 2020.However,Huawei and ZTE continue to feel the adverse effect of the strainedrelationship between the US and China.Following the USs extension of theexecutive order to 2021 in May 2020,the Can

164、adian telecom companydecided against Huawei in June 2020,followed by the UK banning Huaweis5G equipment on July 14,2020.China is considering an action againstEricsson and Nokia in the event EU bans Huawei.See Figure 30 for acomprehensive list of markets awarded to each vendor.5GMarketsbyVendorHuawei

165、89 commercial contracts includingChina,South Korea,Switzerland,Finland(excludes the UK,Canada dueto the recent termination of contract)Safaricom KenyaTelefonicaDeutschlandGermany(along with Nokia)CambodiaUnited ArabEmirates TelecomduUnited Arab EmiratesMaxis MalaysiaVodafone Qatar QatarStc Bahrain(V

166、iva)BahrainEricsson 93 contracts(40 live networks)across22 countriesO2 UKBell Canada CanadaTelus(Nokia and Ericsson)TelefonicaDeutschlandGermanyChina MobileChinaMTS RussiaSinch SwedenOrange EURoad to 5G:How to Make Money in 5GMitchell Kim31RogersCommunicationsCanadaCyfrowy Polsat(Poland)PolandTeleco

167、m Italia(TLIT.MI)Italy,BrazilDeutscheTelekom(DTEGn.DE)GlobalTele Greenland GreenlandTelenor NorwayRINA Wireless USU.S Cellular USGCI USSingtel SingaporeSaudi TelecomCompany,Batelco,Etisalat,OoredooBahrainUAEQatarMTN South AfricaT-Mobile US,USAT&T USSprint USVerizon USSwisscomSwitzerlandVodafone Spai

168、n,Britain,Ireland,and GermanyNokia73 commercial contracts and 23 livenetworksChina Unicom 10%of the core network in ChinaChunghwaTelecomTaiwanOrange Slovensko SlovakiaVodaphoneHutchisonAustraliaAustraliaSETAR ArubaTelefonicaDeutschland(O2Dn.DE)GermanyDeutsche Bahn GermanySpark NewZealand(SPK.NZ)New

169、ZealandDoCoMo Pacific GuamIliad(ILD.PA)EUSoftbank JapanT-mobile US USChina Mobile China(industrial use development)Figure 30:5G Markets by Vendor.Source:Reuters,Huawei,Ericsson,NokiaRoad to 5G:How to Make Money in 5GMitchell Kim323.8 5G subscribers and Capex in ChinaWe believe 5G migration will occu

170、r rapidly in North Asia,specifically Chinaand South Korea,because of governments desire to be technology leaders.For this reason,5G subscriber growth and penetration are not a stock pricedriver for the network operators as was in the case for 4G in China and SouthKorea.Our 5G subscriber forecast for

171、 China,benchmarking off 4G adoption rate,suggests that Chinas 5G subscriber number could reach 1.35 billion in 2025.This is not aggressive considering that Chinas 4G subscribers reached 1.29billion in 2019,only five years after launching commercial 4G service.GSMAforecasts much lower 5G subs of 807

172、million by 2025,which assumesmigration of 4G to 5G occurs only at half the rate seen in 3G to 4G.On the contrary,compared to the muted subscriber forecasts by avarious organizations such as GSMA Intelligence,the sameorganizations have lofty 5G capex projections for China.In fact,GSMAforecasts about

173、38%higher 5G capex for 2019 to 2025 than our forecasts(seeFig 31).This may be because some of these organizations have beenbenchmarking off of a research projection made by CAIST,a research arm ofMIIT,in 2017.This could also be due to the difference in the definition of 5Gvs non-5G capex since the o

174、verall capex forecasts for the Chinese telcos aremuch higher than GSMAs.(See our capex forecast.)We believe telecomoperators will not spend more than 24-25%of their revenues on asustainable basis.Our capex forecasts are based on the operators pastspending and the expected revenue generation.However,

175、we note that wehave not estimated significant IoT related revenues that the bulls areforecasting.(Chinese telecom operators already generate IoT relatedrevenues.However,they are relatively small compared to mobile revenues.)China 5G Capex ProjectionsCNY billionErnst&Young(19-25)1,500CAIST(20-30)2,80

176、0GSMA(19-25)1,314MK Forecast(19-25)952as%of GSMA72%MK total China capex(19-25)2,240Figure 31:China 5G Capex Projection Comparisons.Source:CAIST,Ernst&Young,GSMA Intelligence,Mitchell Kims own forecastRoad to 5G:How to Make Money in 5GMitchell Kim33Figure 32:GSMA 5G Capex forecast.Source:GSMA Intelli

177、genceFigure 33:Ernst&Young 5G forecast.Source:EY AnalysisThere are three reasons why we think 5G Capex spending will be lessthan consensus expectation,particularly in China:1.Uncertain revenue realization will lead telecom operators to be moreprudent with 5G Capex spending.2.Network sharing will red

178、uce overall network Capex spending3.With slower commercial launch and ramp-up,vendors are starting tomore aggressively bid for contracts.4.5G network prices will decline rapidly as we have seen with 3G and 4G.This implies that equipment vendors are likely to see price pressure and hencethe risk to f

179、uture revenues increases.If so,investor sentiment on networkequipment providers such as ZTE and Ericsson will soften as revenueforecasts fall.For this reason,we are not bullish on networkinfrastructure players as a 5G thematic buy.3.8.1 Uncertain incremental revenueBecause we believe incremental rev

180、enue generated from 5G remainsuncertain,we believe telecom operators will be more prudent on 5G Capexspending(and likely for other Asian telcos)and therefore they will besignificantly lower than CAISTs projections made in 2017 after the initialnationwide coverage spending in 2020-2021.We believe the

181、 operatorsRoad to 5G:How to Make Money in 5GMitchell Kim34thereafter will take a more prudent approach in Capex spending i.e.,moreaggressively invest only if there is concrete evidence of incremental revenuefrom enterprises.We noted in our next section 3.9:IoT Connection Projections Gigantic Numbers

182、 but Revenues Elusive showing our rationale for whyrevenues from IoT connections may not reach current bullish expectations.3.8.2 High Cost is Leading to 5G NetworkSharingThere are already signs of the Chinese government sympathizing withoperators need to rationalize 5G network Capex spending.MIIT h

183、as noddedfor China Telecom and China Unicom to share 5G network base stations.China Mobile and the fourth telecom licensee China Broadcasting Network(CBN)signed a network sharing and construction deal,giving the mobilemarket leader access to a valuable 700MHz spectrum and opening the doorto its 2.6G

184、Hz network,funding,and expertise for the national cable TVoperator.By using 700MHz,China Mobile will be able to complete anationwide coverage with significantly fewer base stations than if thecompany had to use 2.5GHz or 3.5GHz band.Network sharing is not limited to China.Japan,Singapore and Malaysi

185、anoperators KDDI/Softbank,Starhub/M1,and Maxis/Celcom have agreed toshare their 5G networks.3.8.3 Cost per Base Station will Decline Rapidlylike 3G/4GOur analysis of historical Capex spending per base station for 3G and 4G,wefind that 5G base station cost is declining at a faster rate(Figure 34).Acc

186、ording to the Chinese telco IR,a recent 5G base station cost fell toCNY155,000 from CNY250,000 at the beginning of 2020.While this isnegative for vendors,a possibility of lower Capex spending is alwayswelcomed by telecom operators.(CNY)Year 1Year 2Year 3Year 4Year 53G405,126343,036164,270148,801100,

187、1724G410,889155,000208,158202,439182,5005G303,042407,857155,000Figure 34:Ave Cost per Base Station China.Source:China Mobile,ChinaUnicom,China Telecom3.9 5G ApplicationsThere are three areas for potential 5G use:eMBB(Enhanced MobileBroadband),uRLLC(Ultra-Reliable Low Latency Communication),andmMTC(M

188、assive Machine-type Communications).On the consumer side,Road to 5G:How to Make Money in 5GMitchell Kim35most of the high bandwidth applications are video.Recent developments of4K,8K,3D videos,expanded use of HD TV,streaming audio and videostreaming services,and interactive video on smartphones,lapt

189、ops,PC andSmart TVs are key uses for the consumers.Since 4G is already serving thisdemand,we believe this segment will not lead to significant revenueopportunities for the telecom operators and therefore it alone cannot justifythe huge investment required to launch 5G services.Figure 35:Three Areas

190、of Potential 5G Use.Source:Ernst Young,ITU,TMForumBoth telecom industry organizations and telecom operators believevideo-related services are the key beneficiaries of 5G services forconsumers.In the long-term,telecom operators may see incrementalopportunities in mMTC and uRLLC.If telecom operators f

191、ind a way tocharge for each IoT connection,there could a significant revenueopportunity.However,it is difficult to factor-in such potential until evidenceof industry customers willingness to pay for IoT connection could beascertained.In fact,IoT service was already being offered by many operatorsusi

192、ng either 4G LTE or NB-IoT(Narrowband-Internet of Things is a serviceprovided using the capacity in the guard band for bursty data such astelemetry).IoT revenues have been very small and therefore has had only anominal impact on telecom operators revenues thus far.Figure 36illustrates some of the ke

193、y applications for 5G,according to GSMA,andFigure 37 shows China Mobiles 5G use vision.Road to 5G:How to Make Money in 5GMitchell Kim36Various Consumer ApplicationsUses 5G toprovideadvancedfeatures suchas 3D viewingand differentperspectiveviews of livematch.Uses 5G toenjoy VRcontentsanywhereanytime.

194、Uses 5G toproviderealistic ARservices suchas the virtualzoo.Road to 5G:How to Make Money in 5GMitchell Kim37Uses 5G toenableextremelyhigh-qualityperformance/music videos.Uses 5G toprocessgames on thecloud andstream to/receive inputfrom users.Uses 5G toenable manypeople to enjoyKaraokesimultaneouslyo

195、nline.Figure 36:Various Consumer Applications.Source:GSMARoad to 5G:How to Make Money in 5GMitchell Kim38Figure 37:China Mobiles 5G Vision.Source:China Mobile3.10 IoT Connection Projections Gigantic Numbers but Revenues ElusiveWhile operators,vendors,industry research consultants and governmentautho

196、rities remain bullish on 5G,citing strong potential revenues in thelong term from the huge number of IoT/machine connections as ajustification for 5G investments,our proprietary IoT revenue(industrial)analysis on China shows that even in the optimistic case,the revenues mayonly be 3%of total revenue

197、s for the Chinese telecom operators.This isunder the assumption that 70-80%of mMTC connections will be in China.The story sounds compelling but when we crunched the numbers,theresults are underwhelming,in our view.201820192020E2021E2022E2023E2024E2025EConnection(Mil)7681,2311,6562,0152,4752,9603,557

198、4,275Revenues(CNY mil)11,14313,75516,64418,23421,27324,17327,59531,502Rev/Connection(CNY)14.511.210.19.08.68.27.87.4%of total connection68%75%78%80%82%85%87%Enterprise Connection(mil)1,8002,2002,6003,1003,6004,2004,900IoT Revenue11,14313,75516,64418,23421,27324,17327,59531,502CM7,5288,84510,70212,76

199、414,46615,71217,10918,901CU2,0803,0403,6784,0303,4044,1094,9675,985CT1,5351,8702,2631,4403,4044,3515,5196,615IoT Connections7681,2311,6562,0152,4752,9603,5574,275CM5518841,1881,4111,6831,9242,2062,565CU110190255311396503640812CT107157212294396533711898Market Share of IoT RevCM68%64%64%70%68%65%62%60

200、%CU19%22%22%22%16%17%18%19%CT14%14%14%8%16%18%20%21%IoT%of Total Service Revenue1%1%2%2%2%2%3%3%Road to 5G:How to Make Money in 5GMitchell Kim39CM1%1%2%2%2%2%2%3%CU1%2%2%2%2%3%3%4%CT1%1%1%1%2%2%3%4%Figure 38:IoT Revenue Forecast.Source:GSMA Intelligence,CompanyData,MK EstimatesNote:Enterprise connec

201、tions are projections by GSMA Intelligence.Weincluded enterprise(industrial)connections only as we assumed consumerapplication connections are included in consumer ARPU.One of the justifications for 5G investment is the potential humongousdemand coming from industrial use or mMTC.While there is no d

202、oubt thedemand digital home and town will grow perhaps even exponentially themath reveals that the impact on overall telco revenues is still lite.Evenif we used the GSMA projections for IoT connections in the long term(11billion by 2025),our analysis estimates that IoT revenues will only make up3%of

203、 total service revenues by 2025 in the case of Chinese telecomoperators.For this reason,we find it hard to be excited about 5G for thetelcos.IoT services can be delivered over 4G LTE;5G is not a requirement.Infact,Chinese telcos have been providing NB-IoT(Narrowband-IoT)servicefor several years.In 2

204、019,they already serviced 1.2 billion IoT connectionsand generated CNY13.8 billion in revenues.That represents only CNY11revenue per connection for 2019.Using these numbers as the baseline andGSMA IoT connection projection,we forecast that by 2025,the total IoTrevenues to be CNY 31.5 billion,about 3

205、%of total service revenues.Chinese telecom operators have been offering IoT services for severalyears.Currently,operators like China Unicom are focused on mobilepayments,travel services and smart wearables(Figure 39.)Chineseoperators collectively generated CNY13.8 billion in IoT revenues from 1.2bil

206、lion connections.Figure 39:IoT and 5G Service Status of China Unicom.Source:CompanypresentationRoad to 5G:How to Make Money in 5GMitchell Kim40IoT revenue(CY mil)8,8453,0401,870IoT revenue per connection(CNY)10.016.011.9Figure 40:Chinese Operators IoT Revenue 2019.Source:Company DataWe flag that unl

207、ike the consumer market where telecom operatorsgenerate revenues by charging a monthly bill per mobile or fixed-linesubscriber,IoT is not typically charged on a per-connection basis.Instead,telecom operators usually have a master contract with clients toprovide a system solution initially and then c

208、harge a maintenance feethereafter.Therefore,the volume of IoT connection does not necessarilycorrespond to revenue growth linearly.For APAC,GSMA Intelligence projects IoT connection to increase to 11billion in 2025 from 3.5 billion in 2018 with industrial applications fuelinggrowth(Figure 41.)China

209、is projected to make up more than 70%of APACIoT connections by 2025.IoT connections could more than double in China to 8 billion by 2025(see Figure 42).The question is how much revenue could be generated bythe telcos and who would be willing to pay for them.If a hospital signs up toa 5G plan for tel

210、emedicine,would it be the same plan as the consumers 5Gplan?Will the hospital be willing to pay on a per GB usage?Uncertaintyremains on how revenues will be generated.As our analysis shows in Figure40,we estimate IoT revenues to make up just 3-4%of the Chinese telecomoperators.Figure 41:APAC IoT Con

211、nection Projection.Source:GSMA IntelligenceRoad to 5G:How to Make Money in 5GMitchell Kim41China MobileChina UnicomChina TelecomIoT connections(mil)884190157Figure 42:IoT Connection Projection for China.Source:GSMA Intelligence4.ValuationsOur key thematic long ideas in APAC are AIS,Globe,Xiaomi and

212、ZTE.Ofthese names,only Globe and ZTE are trading at below their 10-yearhistorical forward P/E.However,we believe thematic ideas do not alwayscorrespond to value depending on how much of the positive factorsincluding the thematic ideas we highlight in this report are priced-in.We note that typically

213、when AIS is in a positive sentiment cycle(mostlywhen the company is not entangled in the Thai regulatory red tape)thestock has traded above its historical average level(see Figure 43.)We alsonote that Xiaomis forward P/E appears expensive because the companysgrowth has not been lackluster since the

214、IPO in 2018.However,we believeXiaomis forward P/E could rerate if the companys market share gain storybecomes evident(Figure 45.)ZTE is trading below its average level becauseof the anti-Chinese technology sentiment brought on by the US tradedispute,in our view.While there is a further political and

215、 regulatory risk onZTE,we believe the stock could benefit from the China 5G build-out,at leastin the short-term(Figure 47.)Globe is currently trading below its historical forward P/E(Figure 44.)Thisis largely because of the resurging competitiveness of its incumbentcompetitor,PLDT.We note that Globe

216、 is in a solid position to leverage 5G tochip away at PLDTs fixed broadband market dominance.We also highlight valuation comparables for all the stocks in the Asia 5Gvalue chain.While we have not focused on all the stocks,we provide thisdata to provide a reference to investors.(Figure 48:Stocks in t

217、he valuechain;Figure 49:Asian telecom valuation comps;Figure 50:Internetplatform valuation comps.)Road to 5G:How to Make Money in 5GMitchell Kim42Figure 43:AIS valuation comparables.Source:FactsetFigure 44:Globe valuation comparables.Source:FactsetFigure 45:Xiaomis Historical Valuations.Source:Facts

218、etWe bear in mind that Ericsson is trading above its 10-year historical averageforward P/E,whereas ZTE is trading below.Valuations favor ZTE,in ourview.Road to 5G:How to Make Money in 5GMitchell Kim43Figure 46:Ericsson Valuations Charts Forward P/E.Source:FactSetFigure 47:ZTE Historical Forward P/E.

219、Source:FactsetSymbolNameLast(31/7/20)%Chg12Mo%ChgEV/EBITDAPE FY1PEEPSFY1P/BVERICEricsson11.540.0030.40-23.73134.030.494.52NOKNokia4.450.00-18.65-17.7167.630.251.55763-HKGZTE2.960.22-5.778.6816.5216.540.183.01600498-SHG Fiberhome4.060.571.7855.8432.8750.900.122.81QCOMQUALCOMM107.190.0043.28-27.5345.3

220、33.89 39.67INTCIntel47.990.00-7.18-9.928.834.842.49AMDAdvanced MicroDevices,Inc.78.200.00130.88-71.43152.471.09 30.151810-HKGXiaomi Corp.Class B1.910.4065.9422.2234.710.06 30.954.22005930-KRX Samsung ElectronicsCo.,Ltd.48.66-1.8723.695.1718.113.12 15.601.52TOWR-JKTPT Sarana Menara0.080.0043.3815.972

221、2.0723.910.006.12TBIG-JKTPT Tower Bersama0.090.0046.39-26.1533.310.009.29SUPR-JKTPT Solusi Tunas0.320.00-18.83-16.710.001.68788-HKGChina Tower Corp0.18-1.41-32.025.8531.5941.540.011.20002916-SHE Shennan Circuit Co22.061.3082.90-40.5539.150.549.80002463-SHE WUS PRINTED CIRCUIT(KUNSHAN)3.440.7546.69-2

222、6.8632.290.137.59600183-SHG Shengyi Technology4.121.2049.9731.3634.4439.950.129.354958-TAIZhen Ding Technology4.60-0.5827.654.8313.1513.210.351.81Road to 5G:How to Make Money in 5GMitchell Kim442342-HKGComba TelecomSystems0.421.5763.1217.0731.9552.270.012.30002384-SHE Suzhou DongshanPrecision4.207.3

223、080.9538.7531.6266.270.135.38603228-SHG Shenzhen KinwongElectronic Co5.110.0618.6030.2427.6334.180.186.003037-TAIUnimicron TechnologyCorp.2.192.0175.958.2421.0528.720.102.223044-TAITripod TechnologyCorporation4.332.6232.514.4012.4011.240.352.086251-TAIDynamic ElectronicsCo.,Ltd.0.600.3692.904.765.54

224、6.810.111.286869-HKGYangtze Optical Fibre1.78-0.29-3.2115.9711.8017.140.151.06600487-SHG Hengtong Optic-ElectricCo.2.370.710.9624.4818.6127.500.132.29552-HKGChina CommunicationsServices0.650.00-8.591.919.7410.120.070.96VNET21Vianet Group22.010.00198.6418.18-214.22-52.54-0.103.48300383-SHE Beijing Si

225、nnetTechnology3.741.4535.5338.6940.9147.360.094.82GDSGDS Holdings80.000.0095.8955.20-542.54-176.41-0.158.42Mean0.5641.1620.39-3.5127.302.066.11Median0.0035.5316.5222.9028.720.133.01Figure 48:Valuation Comparables for the Stocks in the Value Chain.Source:FactsetSymbolNameLast(31/7/20)%Chg12Mo%ChgPE F

226、Y1EV/EBITDAPEEPSFY1P/BV6888-KLSAxiata Group Bhd.0.750.00%-38.08%37.204.8734.630.02 1.706012-KLSMaxis Bhd.1.250.00%-8.37%28.4913.4329.310.04 5.87TEL-PHSPLDT,Inc.27.310.00%22.14%11.925.8213.332.29 2.54GLO-PHSGlobe Telecom Inc.42.070.00%-2.24%12.345.4512.763.41 3.57DTAC-BKKTotal AccessCommunication Pub

227、licCo.,Ltd.1.15-3.48%-38.84%16.124.6414.930.07 3.45ADVANC-BKKAdvanced Info ServicePublic Co.,Ltd.5.880.00%-15.50%19.219.0617.960.31 8.47TRUE-BKKTrue Corp.Public Co.,Ltd.0.11-0.06%-49.89%-142.319.6727.590.00 1.30532454-BOM Bharti Airtel Limited7.430.60%47.84%882.19-8.770.01 3.93500325-BOM Reliance In

228、dustriesLimited27.70-1.63%62.95%31.2916.5832.960.89 2.93532822-BOM Vodafone Idea Ltd0.114.07%17.45%-1.55-0.31-0.07 0.123045-TAITaiwan Mobile Co.,Ltd.3.57-0.23%1.99%25.5010.3822.950.14 4.232412-TAIChunghwa Telecom Co.,Ltd3.730.68%7.84%26.8511.0925.960.14 2.374904-TAIFar EastoneTelecommunications Co.,

229、Ltd.2.150.08%-6.70%25.9110.0723.700.08 3.14TLKM-JKTPT TelekomunikasiIndonesia(Persero)Tbk.Class B0.210.00%-31.42%14.325.3916.510.01 3.22ISAT-JKTPT Indosat Tbk Class B0.160.00%-34.48%-12.392.679.95-0.01 1.15EXCL-JKTPT XL Axiata Tbk0.170.00%-27.27%19.634.3812.280.01 1.43030200-KRXKT Corporation19.98-0

230、.10%-14.18%8.592.639.782.33 0.43017670-KRXSK Telecom Co.,Ltd.185.150.13%-11.13%12.495.0819.79 14.82 0.72Road to 5G:How to Make Money in 5GMitchell Kim45032640-KRXLG Uplus Corp9.61-1.81%-12.50%9.35-11.081.03 0.71788-HKGChina Tower Corp.Ltd.Class H0.18-0.71%-31.53%31.81-41.840.01 1.21762-HKGChina Unic

231、om(HongKong)Limited0.561.87%-43.31%9.78-10.360.06 0.37728-HKGChina Telecom Corp.Ltd.Class H0.300.87%-34.28%8.14-8.030.04 0.47941-HKGChina Mobile Limited6.951.41%-19.42%9.13-9.120.76 0.90Mean-11.2647.137.58 17.211.15 2.36Median-14.1814.325.63 14.930.07 1.70Figure 49:Asian Telecom Valuation Comparable

232、s.Source:FactsetSymbolNameLast(31/7/2020)%Chg12Mo%ChgPEFY1EV/EBITDAPEEPSFY1P/BV3690-HKG Meituan Dianping194.20-0.41%199.92%687.91148.06 475.750.28 11.24TMETencent MusicEntertainment Group15.820.00%9.41%44.5310.4446.580.364.47NTESNetEase,Inc.SponsoredADR451.220.00%93.84%24.9613.1418.16 18.086.61BIDUB

233、aidu,Inc.ADR118.000.00%4.66%18.1619.74 115.676.501.77BABAAlibaba Group ADR252.740.00%45.17%28.4821.5930.998.876.38JDJD.com,Inc.SponsoredADR Class A62.290.00%104.77%48.3140.12 107.401.297.67VIPSVipshop Holdings LtdSponsored ADR21.790.00%182.99%16.9817.3126.571.284.58YYJOYY,Inc.SponsoredADR Class A75.

234、390.00%16.70%21.546.9865.373.501.27MOMOMomo Inc SponsoredADR Class A18.280.00%-46.97%9.252.508.241.982.35NTESNetEase,Inc.SponsoredADR451.220.00%93.84%24.9613.1418.16 18.086.61700-HKGTencent Holdings Ltd.542.501.40%45.36%41.2027.9448.20 13.17 12.11IQiQIYI,Inc.SponsoredADR Class A20.660.00%9.14%-11.70

235、-9.25-1.777.14PDDPinduoduo,Inc.Sponsored ADR Class A84.940.00%286.97%-98.14-74.88-0.87 27.82Average80.4565.8829.1867.465.447.69Median45.3624.9617.3130.991.986.61Figure 50:Internet Platform Valuation Comparables.Source:Factset5.Key RisksFor AIS and Globe,the key risks are the cost of 5G capex and the

236、 spectrumand regulatory intervention.AIS operates in a highly volatile andunpredictable regulatory environment where the government historicallyhas shown a propensity to share in the profits of telecom operators vialicenses and spectrum auctions.AIS has recently acquired a 5G spectrum inthe auction,

237、and therefore the risk of spectrum acquisition remains low forthe foreseeable future.The economics of 5G FWA remains unproven at thistime even though it will be cheaper than building an optical fiber networkfor fixed broadband.There is a risk of low margin and return if the networkRoad to 5G:How to

238、Make Money in 5GMitchell Kim46capacity equipment and device cost do not decline rapidly.AIS is alsocompeting against Thailands government authority,TOT,in the fixedbroadband market.This is unique for Thailand and therefore is a risk.Globe faces similar risks as AIS.However,considering the low penetr

239、ation offixed broadband in the Philippines,we believe the upside is greater than thedownside risk.We believe Globe has sufficient spectrum to roll out 5Gservices in the near-term.Xiaomi faces intense competition in the smartphone space,dominated bySamsung,Huawei,and Apple.Xiaomi recently has shown s

240、trength in its 5Gsmartphone line-up.If successful,Xiaomi could be an attractive marketshare gain story.Being a Chinese technology company,Xiaomi also facesgeopolitical backlash from the US as Huawei and ZTE have faced(Huaweibears the brunt of it,in our view.)There is a possibility that adverse polit

241、icaltone in the US could change if Mr.Trump is voted out of the White House inNovember 2020.Otherwise,negative sentiment on the Chinese techcompanies could persist.For ZTE,poor US relationship is the largest risk.We believe 5G vendors havea one-year window to enjoy as telecom operators build out 5G

242、over the next12 to 18 months.Our thematic idea on ZTE is short-term focused on thereasons we laid out in the previous sections.6.ConclusionSectors we like as 5G thematic ideas are smartphones/devices,5Ginfrastructure vendors,PCB and small cell technology providers,andonly selectively telecom operato

243、rs.We are bearish on North Asia mobileoperators.Our contrarian telecom long ideas are AIS and Globe.The growthpotential of 5G FWA is currently flying under the radar as mostinvestors are focused on the mobile aspects of it.However,we believe5G provides only fixed broadband upside,not mobile 5G.Unlik

244、e NorthAsia,Thailand and the Philippines have low fixed broadbandpenetration.5G FWA provides an opportunity for these mobileoperators to capture new revenue streams which were not possible inthe past because of the exorbitant cost of fiber coverage.We also highlight the window of opportunity for inv

245、esting in device andinfrastructure players.Our historical share price performance analysissupports our view that the best time to get into these stocks is in thepre-launch and in the first two years.We are already at the midpoint ofthis phase but there is still time to capture part of the upside,in

246、ourview.We also hope to add value by adding a realistic expectation to counterthe industrys overly optimistic position on the long term revenueopportunity.We believe achieving the industrys projected revenuesRoad to 5G:How to Make Money in 5GMitchell Kim47from industrial applications will be challen

247、ging.We invite investors torevisit such optimism by reviewing our proprietary IoT connectionrevenue analysis in this report.PCB,data center/cloud,and 5G small cells are also beneficiaries of 5G.However,we do not cover these sectors in depth in this report otherthan to highlight their position in the

248、 5G ecosystem.Among thenames,Shennan Circuits(PCB)and Comba(Small cells)are well-positioned to reap the benefits of 5G.We remain cautious about the fiber sector and China Tower.These aretwo sectors where thematic buy ideas appeared to be sound with theprevalent thought that 5G deployment will comman

249、d significant fiberand base station build-out.Chinese operators already have more than90%fiber to the home(FTTH)coverage.They have been steadilyinvesting in upgrading their backbone due to 4G already(more than50%of capex of Chinese telcos were allocated to non-mobile networkinvestments over the last

250、 five years.)Moreover,Chinese telcos haveover 9.5 million base stations.They are already connected by the fiberbackhaul.In addition,optical suppliers have faced and will likelycontinue to face oversupply without consolidation.For China Tower,industry participants initially focused on the potential n

251、eed for asignificant number of new towers to deploy 5G because of the higherspectrum used.However,we believe the tower needs will be morelimited as 5G will be more about the small cell deployment using themilliwave spectrum overlaid on the 4G macro coverage for theforeseeable future.Disclosure&Certi

252、ficationI/We have no position(s)in the any of securities referenced in this insightViews expressed in this insight accurately reflects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as appropriate.This insight does not contain and is not based on any

253、 non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this insight or hold any specific opinion on the securities reference

254、d thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms specified therein.Mitchell Kim(31 Jul 2020)Road to 5G:How to Make Money in 5GMitchell Kim48SMARTKARMA RESEARCH:This publication is published by Smartkarma Innovations Pte Ltd(Smartkarma),the o

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