According to the MIIT of the PRC,the number of broadband internethousehold users steadily increased to 175 million in 2012, up 16.8%YoY. With Chinese Government speeding up the development of theFiber-to-the-home (FTTH) system andthe three major telecommunicationsoperators speeding up the development of the 4G communications network,optical fiber deployment service industry should remain fast growing.
1Q13 revenue increased 53.7% YoY to RMB56millionand net profitincreased 4.3% YoY to RMB16million, in line with expectation.Optical fiberdeployment services revenue increased68.9% YoY to RMB53million,ofwhichdeployment services withtraditional method revenue increased2.7x to RMB34 million.We expect deployment services revenue CAGR at31.6% in 2012-15. Low-voltage integration services revenue decreased74.3% YoY to RMB0.9 million due to keen competition.Despite pressureonthe Company’sgross margin, we expect gross margin could maintain at over40% in FY13-15.
We raise EPS estimates of FY13 by 2.0% toRMB0.056, and lower EPSestimates of FY14-15 by 1.4% and 4.6% respectively to RMB0.069 andRMB0.083. Estimatesdo not include possible acquisitions, which couldfurther drive EPS CAGR.We apply16.3x FY13 PER and 0.7x PEG to arriveat a TP of HK$1.15, maintain“Accumulate”. Risks include belowexpectation gross margin and below expectation cash from operation.