2012 annual results preview: We expect the company to achieve revenue growth of 1.6% YoY, with a loss of HK$ 303M for the year.
Sluggish revenue growth: As we highlighted in early 2012, CM’s reduced capex on GSM could negatively impact Comba as CM has been the largest client. We expect relatively stable antenna & wireless access businesses, with increases in services to offset the decline in the wireless enhancement business in 2H12. IB-WAS deployment has been on track, but still lacks scale at the current stage.
GPM under pressure: Following a tough 1H12 when GPM was slashed by 10.2pp YoY to only 27.8%, we forecast 2H12 GPM of 30% (2H11: 36.0%). We attribute lower GPM to a slowdown in the high-margin wireless enhancement business, price pressure from telcos, and lower contribution from IB -WAS.
Downsizing efforts should take some time: Opex ratio is expected to remain at a relatively high level in 2012. Com ba will likely continue with R&D investment in new products.
2013 Outlook: Driven by a potential acceleration in 3G migration and data usage, we expect a mild recovery in the wireless enhancement business in 2013.
We also maintain our previous view that IB-WAS would make a meaningful contribution from late 2013. Margin pressure is expected to persist into 1H13, but a moderate recovery in the wireless enhancement business and a ramp -up of IB-WAS would bolster future GPM in the long-term. Potential accelerat ion in LTE deployment may also benefit the company’s antenna business. The overall business should be on track. We forecast revenue growth of 10.7% YoY in 2013.
Earnings revision: We lower our 2012- 14 earnings forecasts from HKD 0.08/0.27/0.36 to HKD -0.20/0.17/0.24 to factor in the tougher -than -expected business environment. We have lowered our TP from HK$ 2.7 to HK$ 2.5. The company is currently trading at 16x 13E P/E. We believe the market may have factored in the company’s weak 2012 earnings, and the v aluation may have largely priced in an earnings recovery and favorable IB -WAS development. We therefore maintain our Neutral rating.
Short-term catalyst: We expect capex guidance from telecos, es