The unexpected increase in capital spending by the mainland's three major telecommunications network operators this year is poised to bring a windfall to Comba Telecom System Holdings.
According to senior management at Hong Kong Science Park-based Comba, demand from its customers China Mobile, China Unicom (Hong Kong) and China Telecom will focus on so-called wireless enhancements for their respective 2G, 3G and Wi-fi networks.
The three carriers, which accounted for 84.8 per cent of Comba's revenue last year, said in separate annual earnings announcements last month that they would be boosting capital investments. A year ago, they had said capital spending would either decrease or stay flat.
Comba specialises in wireless-enhancement products, which include indoor and outdoor repeaters, tower-mounted boosters and remote radio units used by operators to cover blind spots in 2G, 3G and Wi-fi network coverage.
'The management is confident that the group will become the world's largest wireless communications enhancement supplier in the near future,' said Comba chairman and president Tony Fok Tung-ling.
In a report, DBS Vickers Securities analyst Tam Tsz-wang said Comba is 'on track for solid growth'.
China Mobile, which is Comba's largest customer and accounted for 52 per cent of its sales last year, plans infrastructure spending of up to 132.4 billion yuan (HK$157 billion) this year from 124.3 billion yuan last year. It aims to spend another 255.9 billion yuan over the next two years.
Wilson Tong Chak-wai (pictured), Comba executive director and group financial controller, said the company has about 30 provincial offices and 200 branches that offer antennae and subsystems, wireless access products and network services, such as design, installation and maintenance. 'Our antennae, for example, are adopted for the base stations of Huawei, ZTE, Nokia Siemens Networks, Ericsson and Alcatel-Lucent,' he said.
Tam at DBS Vickers said: 'Management believes that installation of millions of hotspots in China in the next few years will fuel the demand for wireless local area network [Wi-fi products].'
China Mobile, Unicom and China Telecom all employ so-called mobile data-offloading initiatives, which use advanced Wi-fi networks to seamlessly help handle data traffic on 2G and 3G networks.
To support the anticipated growth in demand, Tong said Comba was increasing the number of staff to more than 10,000 this year from 9,400 at the end of December. That headcount includes employees in its steadily growing overseas markets.
Analysts at Morgan Stanley Research in Hong Kong said in a report that Comba's own capital expenditure this year 'could reach 150 million yuan to 200 million yuan, with 40 to 55 per cent of that spent on the construction of its new research and development centre'.
Tong said Comba was also looking to grow in overseas markets, such as Indonesia, Thailand and Brazil. In addition, the company was preparing the launch of 4G network products based on the standard called Long-Term Evolution.
In a report, analysts at Standard Chartered Research in Hong Kong said Comba also 'intends to step up efforts in product customisation and localisation, which should help the company crack the US and European markets as well'.
Comba posted a 28.3 per cent increase in net profit last year to HK$724.3 million from HK$564.5 million in 2009, due largely to strong sales from the three mainland telecommunications operators.
Revenue rose 16.9 per cent to HK$5.2 billion from HK$4.4 billion. Basic earnings per share climbed 24.1 per cent to 55.47 HK cents from 44.7 HK cents.
Its share price closed 3.62 per cent up, at HK$9.44 on Friday.
Standard Chartered maintains an 'outperform' rating on the stock and a 12-month price target of HK$12.20, while DBS Vickers has a 'buy' rating and a price target of HK$11.60.