An interim report issued by ZTE, China's leading 3G share, shows its operating income and net profit during the first half of the year reached 27.71 billion yuan and 780 million yuan, respectively, up 40.4% and 40.5% over the same period of 2008. ZTE's share price has maintained its rising trend now for about 9 months.
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China Investment Capital Corporation (CICC) has recently rated the telecoms equipment sector of the A-share market, and concludes that the avearge P/E of China's telecoms operators is up to 40x, against the current average of 25x in the A-share market as a whole, and far higher than the 14.2x in the international market of telecoms operators.
The launch of China's 3G and the investment of operators have brought about an historic year for China's telecoms equipment industry. Among the big international systems operators, only Chinese manufacturers ZTE and Huawei sport rising operating incomes and net profits in this year's first half. Excepting Ericsson's sales growth though reduced profits, incomes and profits for other major international equipment manufacturers are "double-down."
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Analysts' statistics show ZTE's market shares in the international market for CDMA, GSM, TD, terminals, and data cards have increased to the second, fourth, first, sixth, and the second position, respectively.
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3G has also boosted the development of upstream and downstream manufacturers in the telecom equipment industry chain, e.g. systems integration service providers Bright Oceans and Teamsunas, as well as professional parts manufacturers Wuhan Fingu and ZCTT. By August 14, the shares of Bewinner Communications and Talkweb, two domestic telecoms value-added service providers, had risen 82.79% and 52%, respectively.
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At the same time, shares of the Chinese "telecoms value-added service providers" listed on NASDAQ, Kong.net, Hurray, and Linktone, have far outperformed the market, rising 268%, 84.21%, and 73.33%, respectively, and even shares of portals such as Sina, Sohu, Netease have increased by 31.02%, 31.18%, and 87.78%.
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However, excepting Kong.net's second quarter profit growth of 108%, the performance of these Chinese concept stocks has not been as eye-catching as their share price increase. Though its share price jumped by 73.33%, Hurray's revenue fell by 22.9% in the second quarter and its loss amounted to $10.9 million, its biggest loss over the past four quarters.
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Investors' enthusiasm for 3G concept companies lies in optimistic expectations of 3G data service in the future. With 3G's launch, voice business growth has begun to stagnate, and operators are morphing into integrated information service providers and turning their attention to value-added services. The Ministry of Industry and Information Technology is encouraging them to "seize the opportunity of the development of 3G and TD, and promote the formation of new economic growth points such as culture, science and technology, the animation industry, theme parks, software services, digital homes, and wireless cities."
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During the first six months, operators' non-voice service revenue increased by 7.49%, year-on-year, accounting for 35% of their main business revenue. The input and expectations for value-added services by operators are also on the rise. For example, China Mobile's Mobile Market on-line shops are up and running, and China Mobile promises that operators with value-added services in the on-line shops will receive 70% of sales revenue. In addition, China Mobile has also given strong support to developers of TD terminal applications software. It is said that China Unicom has bought five million iPhones at 10 billion yuan, for the purpose of increasing value-added services revenue.
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The proportion of Internet use by desktop and notebook has declined, while that of Internet-connected mobile phones has increased, from 39.5% at the end of 2008 to 46% in June. The number of mobile Internet users on 3G has enormous room to expand and stimulate value-added service providers to participate.
The 3G investment feast is just beginning.
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