│
│
Powered by the
EFA Platform
Opportunities along with challenges
■ HK-listed TMT names, in general, underperformed the market in 2018 and in China’s
TMT sector, non-hardware outperformed hardware.
■ We still prefer the non-hardware segment, as investment themes such as
increasing adoption of cloud computing and AI remain intact. The
segments are likely to outperform the toC segment.
■ The hardware segment was dragged down by handset components, since the
market is maturing. 5G and related names will remain the
focus of the market despite
their outperformance in 2H 2018. 5G-
related applications such as IoV, IoT, IIOT and
Smart City will be investment themes in the medium term.
■ Any share price weakness around 2018 results announcements
in Mar 2019 will offer
a good buying opportunity.
China TMT underperformed the market in 2018
In terms of share
-price performance, on average, the HK-listed TMT non-
hardware names
outperformed the
hardware names, but both segments underperformed the overall
market
in 2018. On average, share prices in the TM
T non-hardware sector dropped 26.1
018 vs. -29.4% for the hardware sector, -13.6% for the HSI, -13.5
-20.9% for MSCI China. The TMT non-
hardware sector performance was
dragged down by the weak share price performance of sub
-
ertainment and e-commerce, while IT services and media outperformed.
was dragged down by handset component names
, given weaker-than-expected shipment volume,
bout Apple’s order cut and concerns about peaking of the semiconductor cycle. In 2018
the trade dispute between China and US, RMB depreci
ation, slower
economic growth and weaker
-than-
expected downstream demand also put pressure on
the
China TMT sector. We see divergence in the valuation of HK-listed TMT names
, with
those under major investment themes trading at
a much higher valuation, while
concerns about the growth outlook have been de-rated. Names with
s and high trading liquidity have performed better than their smaller cap peers.
fer non-hardware over hardware
the increasing macro uncertainties, we believe that investors will remain short-
term
focused and that the share price performance of the HK
-
listed TMT names in particular
might remain volatile in 1H 2019
, especially in
Q1 2019, given the seasonality impact and
the
lack of near-
term catalysts. However, industry development, including higher IT
spending by corporates and government, continuing cloud migration,
the adoption of 5G
-
related technologies and applications
,
and supportive government policies, remains intact.
We be
lieve that early Q2 2019 will be a good entry point for the leading TMT names,
a realization of share price catalysts, such as the
relaxation of government
regulations on
other verticals in China’s internet sector, the 5G timetable and road
map
release by telecom services providers
, and more concrete policies
to boost economic
growth.
We still expect our preferred names to report decent growth in 2019 and 2020, given
favourable industry development trends. In general, we prefer the TMT non
-
hardware
sector over the hardware sector, as the former will be less impacted by the mature
hardware market
, and leading names will gain market share. In the non-
hardware TMT
sector, we believe that IT services, online video, AI development, IT services
, o
, and 5G-
related applications are the hot spots, and that the leading players in
mobile games will continue to gain market share. In the hardware segment, the leading
players with exposure to high
-growth areas, such as 5G, optical sensors, IoV, IoT,
the Industrial Internet,
will continue to benefit from industry development. However,
TMT hardware names in segments with concerns about
the
growth outlook will continue to
underperform.
China Tower
BUY, TP HK$1.81, HK$1.48 close
The Company is an early 5G CAPEX cycle
name with limited exposure
to overseas
markets and faces less macro risk.
Inspur International
BUY, TP HK$4.50, HK$3.39 close
Inspur is an under-appreciated IT services
name, which will benefit from increasing IT
spending. The Company is trading at a lower
valuation than its peers.
Tencent
BUY, TP HK$341.87, HK$314.00 close
The resumption of online game approval is
expected to boost sentiment on sector
companies, including Tencent. Other business,
such as online advertising and online
entertainment, will support medium to long-
Summary valuation metrics
E markpo@chinastock.com.hk
E cmwong@chinastock.com.hk
P/E (x) Dec-18F Dec-19F Dec-20F
China Tower 104.68 80.71 66.78
Inspur International 12.46 11.34 9.84
Tencent 30.53 25.02 20.05
P/BV (x) Dec-18F Dec-19F Dec-20F
China Tower 1.26 1.25 1.23
Inspur International 1.37 1.24 1.12
Tencent 7.96 6.18 4.82
Dividend Yield Dec-18F Dec-19F Dec-20F
China Tower 0.00% 0.37% 0.30%
Inspur International 1.47% 1.76% 2.03%
Tencent 0.33% 0.33% 0.33%
