Small-cell demand driven by surge in mobile data consumption Small-cells have been employed globally as an efficient method of mobile data off-loading, supporting 2G/3G/4G/Wi-Fi. Small-cells are more popular, in particular in developed nations where macro base station construction costs are high. Small-cells provide a cost-effective alternative way in which teleco can extend wireless coverage.
Challenges of broad small-cell adoption Large scale deployment may be restricted by high unit costs, a lack of clear benefits to end-users, and insufficient telco commitment. Telco profitability has recently been affected by handset subsidies, which have likely led to increased caution. With maturing technology and improving public perceptions, we expect Comba to exploit small-cell opportunities, with a meaningful earnings contribution from late 2013.
Cautiously optimistic on wireless enhancement Although we expect wireless enhancement demand from telcos to be strong in the long term, current 3G utilization rates are still low, indicative of reduced near-term demand. Even with 4G, early-stage capex will focus on macro coverage rather than network enhancement.
Given continued pressure on GPM and the weak 2H12 business environment, we have lowered our 2012 EPS forecast to HK$ 0.08. Look forward, we expect new products to see an increase in revenue contribution from late 2013, which should boost margins. The company's downsizing efforts will also produce benefits in the long term. Besides, the potential acceleration in LTE deployment should also benefit the company's antenna business. We have increased our 2013-14 EPS forecasts HK$ 0.27/0.36. We have therefore raised our TP to HK$ 2.7, based on 10x 13E P/E.
The market has fully priced in weak 2012 earnings, and the current valuation has priced in high expectations for the contribution of new products. Maintain Neutral.