CSCI-Stock Connect-Hytera Communications (002583 CH)：Well poised for upcoming boom - 20171113

Well poised for upcoming boom

Broadband-Narrowband convergence and emerging markets major catalysts for global private network growth over the next seven years. Analog and digital communications respectively underpinned 55% and 41% of the global private network market in 2016, with analog expected to contract to 32% and digital expand to 61% by 2020, according to IHS. The switch from analog to digital in recent years has boosted revenues for private network system and terminal providers, while the next seven years will see broadband-narrowband convergence and emerging markets pick up the baton to drive the next wave of growth, with global broadband private network market size anticipated to advance at a CAGR of over 23% to USD2.6bn by 2020, and emerging markets in regions like South America, countries along the Belt and Road and Africa estimated to be worth an aggregate RMB150bn for years to come.

Hytera, one of few companies in the world that can provide a full suite of cutting-edge Professional Digital Trunking (PDT), digital mobile radio (DMR) and Terrestrial Trunked Radio (TETRA) products and solutions, is poised for solid growth over the next two years on the back of: (1) its predominant position in the public safety field; (2) rising market shares in the metro transportation and commercial sectors thanks to its leading DMR/TETRA technologies; (3) continuously high input into R&D to shorten the gap with broadband system vendors; and (4) an extensive global sales network of nearly 1,000 dealers around the world. We thereby project Hytera to reach a revenue of RMB5.4bn/7.7bn in 2017/2018, up 58%/41% YoY. Recommend a Buy rating.

Risk factors: (1) rivals like Huawei and TD Tech will keep chipping away at Hytera, in our view; (2) expansion in the European private network market may be held back by fierce competition; (3) Sepura may continue to lose money if its integration misses expectations; and (4) Motorola Solutions’s ongoing patent actions against Hytera in the US, Germany and Australia expose Hytera to substantial claims risks.