China Mobile （00941:HK – Not rated） announced a new optical cable tender last week. We maintainour 18E EPS forecast of Rmb2.14 （+15.1% YoY）； however, given a potential price cut, we revisedown our forecasts from Rmb2.41 to Rmb1.84 in 19E （-14.0% YoY） and from Rmb2.55 to Rmb1.89 in20E （+2.7% YoY）。 We lift our target price from HK$22.00 to HK$25.50, representing 12x 19E PE. With8.8% downside, we maintain our Hold rating.
Tender offer. The new optical cable tender represents a total of 105m fkm （vs 110m fkmpreviously）。 The maximum tax-inclusive bid price is c.Rmb112/fkm （vs a final tax-inclusive price ofRmb120-plus/fkm previously）。 Moreover, the number of successful bidders may reach 10-13 （vs 17previously）。
Supply and demand dynamics. We believe the heyday of the fibre industry has passed. We notefibre demand increased significantly in the past two years, driven by domestic operators. In order toprotect domestic production, the Chinese government has implemented a number of anti-dumpingmeasures on fibre products. We believe two years will be necessary for domestic capacity to expandto a sufficient level. As a result, fibre supply is quite tight in the past times. While, we believe fibredemand from 5G will not become a major driver in the coming 12 months. Tight supply situationhas gradually relieved due to more capacity release and less demand.
Potential price cut. The maximum bid price is c.Rmb112/fkm, which is c.8% lower than the previousfinal bid price. However, we note fibre prices on the open market have dropped from more thanRmb80/fkm to Rmb50-60/fkm in the past two years. With optical fibre representing the largestportion of cable costs, we expect the final price cut to exceed 10%.
Market share gain. The market believes China Mobile will limit the maximum number of successfulbidders to 10-13 （vs 17 previously）。 As a result, we expect leading fibre manufacturers, such asYangtze Optical Fibre, to gain market share. Thanks to an associate company, we note YangtzeOptical Fibre managed to win a 50% share during the previous tender. However, we see thepotential decline in average selling price （ASP） as a real concern for the company.
Maintain Hold. The stock is trading at 13.2x 19E PE and 2.5x 19E PB. We maintain our 18E EPSforecast of Rmb2.14 （+15.1% YoY）； however, given a potential price cut, we revise down ourforecasts from Rmb2.41 to Rmb1.84 in 19E （-14.0% YoY） and from Rmb2.55 to Rmb1.89 in 20E（+2.7% YoY）。 We lift our target price from HK$22.00 to HK$25.50, representing 12x 19E PE. With8.8% downside, we maintain our Hold rating.