AsiaInfo Technologies （AsiaInfo） is the largest telecom software provider in China,with a dominant market share in the BSS segment. AsiaInfo has achievedbreakthroughs in network function virtualization, and the OSS segment offers hugegrowth opportunities.
The impact of reconciliation items, such as FX and share-based compensation, isexpected to fall significantly in 2H19F and 2020F.
AsiaInfo can leverage its product portfolio and business relationships with telecomoperators to develop its data-driven business, which should create medium- to longtermgrowth for the Company.
We expect AsiaInfo’s top-line growth to accelerate in 2019F–2021F during the 5G rolloutand increasing demand from the enterprise segment. AsiaInfo is trading at 18.9x2019F P/E and 11.1x 2020F P/E, which doesn’t look expensive compared with otherHK-listed IT services names and 5G hardware names. We initiate coverage onAsiaInfo with an ADD rating and a target price of HK$11.91, based on 15x 2020F P/E,which is in line with the average of 14x 2020F for its listed IT services peers.
Largest business support systems （BSS） provider in China
AsiaInfo is a leading player in business and operations support systems. Telecomoperator-related business accounted for 96.8% of its turnover in 1H19. The Company hasa 25% market share in the telecom software market, ahead of Huawei and ZTE.
5G roll-out to drive growth
In the 5G era, non-hardware companies will benefit from demand for systems upgradesand transformation. Network functions virtualization will be required in 5G to provide newfunctions and applications, such as network slicing, which will provide an opportunity forthe telecom non-hardware industry. Telecom operators are expected to charge 5G tariffsin a multi-dimensional mode. These new solutions under 5G will provide the telecom nonhardwareindustry with substantial opportunities to expand the scope and scale of itsengagements. AsiaInfo achieved a breakthrough in network functions virtualization（NFV）， and the Company is likely to break into the operations support systems （OSS）segment. AsiaInfo should maintain its leading position in the BSS segment, and OSSrelatedbusiness opportunities offer upside. We forecast that AsiaInfo’s operatorsbusiness will grow at a CAGR of 14.3% in 2018–2021F.
Non-telecom segment
AsiaInfo has leveraged its strong data analyzing capability, with over 100 industry datamining calculation methods and models, as well as its in-depth understanding of theoperating environment and key points of its customers’ business, to provide Software asa Service （SaaS） scenario-driven operation services to customers in different industries.AsiaInfo is concentrating on sophisticated, large-scale projects for SOEs, which havehigh entry barriers and low credit risk. In 2018, AsiaInfo’s data-driven operation servicesreported revenue of Rmb82.5m, double that of 2017. Data-driven services reported104.6% yoy growth in turnover in 1H19.
Initiate with ADD and a target price of HK$11.91
We expect AsiaInfo’s top-line growth to accelerate in 2019F–2021F because of the 5Groll-out and increasing demand from the enterprise segment. AsiaInfo is trading at 18.9x2019F PER and 11.1x 2020 PER, which doesn’t look expensive compared with other HKlistedIT services names and 5G hardware names. We initiate coverage on AsiaInfo withan ADD rating and a target price of HK$11.91, based on 15x 2020F P/E, which is in linewith the average of its listed peers. Key investment risks include industry concentration,operator mergers and privacy regulations.