Core Yamaichi maintained its Buy rating on Comba (2342 HK), with a target price: of HK$3.80, and a potential estimated return of +36.2%.
Notably, the report's authors conducted an interview with Wilson Tong, CFO of Comba, to discuss various development catalysts. Among the core developments noted by Tong was the on-track status of the Comba's small cell roll out. According to Tong, "[u]p to early October, 4 provinces have launched IB-WAS (a form of small cell), while 12 provinces were in trial testing and preparing for commercial application. We believe both Comba and telecos are gaining experience in the technical certification progress, which has been a barrier for the roll out of small cell."
Moreover, Tong continued, "[w]e now think Femto cell can contribute a single-digit share of revenue in FY13F.
Furth bolstering Comba's growth prospects, the report notes, core equipment vendors such as "Huawei pose limited competition threat to small cell given that: (i) Promoting small cell solutions aggressively would cannibalize their core equipment business, and (ii) Small cell solutions require service provision as complementary, which is not an advantage of the core equipment vendors."
One potential growth concern cited by the report is that, although "China Mobile (941 HK) needs small cell service provision to cover its deficiencies in TD-SCDMA network, the pace of IB-WAS roll out is not rapid enough. This is because of the technical certification requirement of a small cell network as its gateway build-up is equivalent to that of a base station. For example, it takes Comba 2 years to complete the certification progress in Guangdong." Notwithstanding, the report concludes, "[w]e believe both Comba and telecos are gaining experience and the certification progress shall speed up…[and we] now think Femto cell can contribute a single-digit share of revenue in FY13F.
Another concern cited by the report is that "[c]ore equipment vendors like Huawei are stepping into small cell provision. However, management argued the competition threat to Comba is limited given that: (i) Promoting small cell solutions aggressively would cannibalize their core equipment business as there are substitution effect between the two, (ii) Small cell solutions require service provision as complementary, which is not an advantage of the core equipment vendors, and (iii) Core equipment vendors are focusing on small cell products at household level, but with limited presence at corporate level. The report also downplays this concern, noting Comba's position as "the onlyplayer in the wireless enhancement sub-segment with major small cell product offerings, thanks to the Company's first mover advantage in R&D."