Sector

Rating

Price target

52wk H-L (HK$) 1.60-1.00

Market cap (HK$) 2,683.0m

Shrs outstanding 2,461.4m

Main ownership

12/15A 12/16A 12/17E 12/18E

EPS(HKD) 0.087 0.062 0.097 0.115

P/B(x) 0.7 0.8 0.7 0.6

P/E(x) 12.5 17.5 11.2 9.5

EV/EBITDA 7.0 10.4 8.3 10.7

Div. yield(%) 3.0 2.1 2.3 2.5

ROE(%) 5.8% 4.3% 6.6% 7.2%

ROA(%) 2.2% 1.6% 2.6% 3.0%Sources: Company data, Bloomberg, Anli research

Sources: Bloomberg as of 14 Jul, 2017

Fig.1: Valuation comps

P/B(x)

2016A 2017E 2018E 2016A

2342 HK COMBA TELECOM SY 340 1.09 17.5 11.2 9.5 0.8 1.6 4.3 2.9 6.1 -21.7763 HK ZTE-H 13,927 18.66 n.a 15.6 14.2 1.9 -1.4 -6.3 1.7 83.1 38.6947 HK MOBI DEVELOPMENT 123 1.17 12.6 n.a n.a 0.7 3.0 5.4 0.9 30.0 -4.91155 HK CENTRON TELECOM 55 0.55 3.2 n.a n.a 0.2 4.2 7.0 5.8 13.4 5.8552 HK CHINA COMM SER-H 1,294 4.48 10.7 9.7 8.9 1.0 4.2 9.9 6.1 10.7 -8.6Average 11.0 12.2 10.9 0.9 2.3 4.0 n.a n.a n.a

002792 CH TONGYU COMMUNI-A 1,094 32.87 34.2 29.3 23.6 4.0 9.3 14.3 -8.1 -46.3 -39.4300597 CH JILIN JLU COMMUN 571 16.13 52.0 n.a n.a 7.0 9.7 14.1 -8.0 n.a n.a002194 CH WUHAN FING -A 713 8.56 n.a 38.9 34.2 2.6 -12.2 -15.6 -5.3 -39.8 -33.4300050 CH DINGLI COMMUNI-A 739 10.05 41.1 25.8 20.5 2.3 5.2 6.0 -5.9 -30.4 -23.3300310 CH GUANGDONG EAST-A 1,534 11.79 52.1 30.2 22.1 3.9 5.7 7.7 -11.0 -39.3 -12.8Average 44.8 31.1 25.1 4.0 3.5 5.3 n.a n.a n.a

CSCO US CISCO SYSTEMS 156,352 31.27 14.8 13.1 12.8 2.4 8.2 15.7 1.2 5.1 3.5JNPR US JUNIPER NETWORKS 11,115 29.09 17.3 13.0 12.3 2.2 6.7 12.8 2.2 26.0 2.9IBM US IBM 144,335 153.63 11.6 11.2 11.0 7.9 9.8 69.8 0.5 -4.1 -7.4Average 14.6 12.5 12.1 4.2 8.2 32.8 n.a n.a n.aTotal average 23.5 18.6 16.0 3.0 4.7 14.0

Source: Bloomberg as of 14 Jul 2017, Anli research

Px % chg.

YTDROA (%) ROE (%)

P/E(x)

A share TMT

International TMT

Px % chg.

WTD

Px % chg.

1 yr

H share TMT

Ticker Company name Mkt Cap (US$m) Last Price

HK$1.5Price (HK$/shr) as of 14 Jul, 2017

TUNG LING FOK (32.9%)

Kimmy Tong/+852 23235118/kimmytong@anli.com.hk

Price performance

Research Analyst

HK$1.09

Key indicator forecast

July 14, 2017

Comba Telecom (2342.HK); ramping up for 5G solutions; Buy

Key data

TMT

Buy

Margins will be stable in FY2017E. Comba Telecom System (Comba)‘s revenue dropped 12.1% YoY at HK$5,954.3m in FY2016. Its margins squeezed and company share price slumped 36.1% after FY2016’s annual report announcement. We think the negative factors have already been reflected in Comba’s current share price. Comba won two tender bids for China Telecom (728 HK) in 1Q17 - projects to develop 800M LTE/2G LTE base station antennas in China. Management mentioned the delivery process has been completed, and the positive operating cash flow will reflect in the company’s FY2017 annual results. In FY2016, Comba acquired 51% interest of ETL for a consideration of US$91.8m, one of the top three telecom operators in Laos, covering 17 provinces and the capital of Vientiane. ETL has a full license with 1,200 BTS and 1m subscribers. We are positive on this acquisition given: 1) Expansion of market share in Asia Pacific; 2) Increase equipment sales due to Laos low mobile penetration rate in Asia Pacific; 3) Possibility of tax deduction under PRC’s “One Belt One Road” scheme. Hence, we uplift Comba’s operating and net margin growth to 0.7ppt/1.2ppt in FY2017E. Currency risk to minimize in FY2017E. 80% of Comba’s revenue comes from RMB, followed by the US dollar and Brazilian real. The RMB depreciation risk has mitigated since May 2017 when China set a daily central parity rate in RMB to move no more than 2% above or below. Therefore, the RMB trend should stabilize despite US’ interest rate hike in 1H17. Brazil’s currency experienced its worst performance last year, exchanging at 3.5075 USD/BRL in Dec 2016. Since then, there has been a turnaround, and the Brazilian real have gradually appreciated. According to management, the impact caused by Brazilian real amounts to less than USD$20m, so we think the currency impact will be minimized in this year. Ramping up efforts for 5G network solution system. China is gradually capitalizing on the opportunities provided by the next generation of technology in mobile internet, Internet of Things (IoT), big data and cloud computing. Therefore, customers anticipate the evolution of 4G and the future of wireless generations. Recently, China’s top three largest telecom operators announced to develop 5G infrastructure for US$180bn, surpassing Japan’s target of US$46bn. The 5G trial will be implemented in 2H17 in several Chinese cities, including Beijing, Shanghai, Guangzhou and Ningbo etc. Consensus predicts the Chinese Government will officially carry out 5G mobile networks in 2020. We assume Comba will take advance of 5G equipment products. Management also mentioned its ongoing deployment of Small Cell and future growths of IP networks and 5G connections will be a long term growth driver for the company. We see a positive outlook for Comba as telecom operators in the mobile network industry are moving towards higher capacity and low network latency for greater cost-effective systems and better consumer experiences. We also believe Comba’s big three customers’ low frequency refarming will increase data plans and consumption with more advancements in network coverage. Comba will likely benefit from the 5G network implementation, which will support Comba’s wireless access, and wireless enhancement & antennas segments in the next couples of years. We initiate our BUY rating with a target price HK$1.5 per share, implying a 37.6% upside. Despite decreased margins in FY2016, we believe Comba’s future looks promising, given: 1) Stable margins in FY2017E from punctual project deliveries; 2) Acquisition in Laos’ telecom operator, which will increase its equipment sales and market share in Asia Pacific; 3) Minimized currency risk in FY2017E; 4) Negative impacts already priced-in share price; 5) 5G network infrastructure development will be a growth driver for the company. Key risks: High CAPEX from Laos’ network expansion; RMB and BRL depreciation; Delayed tender bid schedules for wireless network equipment China’s telecom operators; Longer than expected transitional phase to 5G network solutions.

0

0.4

0.8

1.2

1.6

2

0

5000

10000

15000

20000

25000

30000

HK$/shr Pts Hang Seng Index (LHS)

Comba (2342 HK) (RHS)

1

Source: Company data, Anli research estimates Source: Company data, Anli research estimates

Source: Company data, Anli research Source: Company data, Anli research

Source: Company data, Anli research Source: Company data, Anli research

Source: Company data, Anli research

July 14, 2017

Fig.2: We forecast a company revenue turnaround in FY2017E

Fig.3: We predict company's OPM and NPM will improve by a

higher operating leverage

Fig.4: Management forecast a stable margin for the antennas &

subsystems segment in FY2017E

Fig.5: China's largest telecom operators are Comba's main

customers

Fig.6: Revenue contribution from the Americas decrease 1.6%

YoY in FY2016, while China remains stable

Fig.7: Cost to revenue ratio was 29.3% FY2016, higher than

25.8% in FY2015

Fig.8: Peers comparison—Comba expected to turnaround with peers as industry gear up for 5G development in China

2,616 3,092

2,502 2,638 2,389 2,174

1,142 1,004 885 337 286 393

-

1,000

2,000

3,000

4,000

FY14 FY15 FY16

HK$m Revenue breakdown by business

Antennas & subsystems Services Wireless enhancement Wireless access & transmission

6,733.2 6,770.9

5,954.3

6,252.0

6,689.7

-20%

-10%

0%

10%

20%

5,200

5,600

6,000

6,400

6,800

7,200

FY14 FY15 FY16 FY17E FY18E

HK$m Company revenue

26.1% 28.3% 29.0% 30.0% 30.0%

3.0% 5.9% 5.0% 5.7% 6.2%

2.2% 3.1% 2.6% 3.8% 4.2% 0%

10%

20%

30%

40%

FY14 FY15 FY16 FY17E FY18E

Margins analysis Gross margin(%) Operating margin(%) Net margin(%)

47.7% 31.2% 29.5%

14.1% 25.6% 25.8%

16.9% 23.3% 19.8%

20.0% 16.8% 18.3% 1.4% 3.1% 6.6%

0%

30%

60%

90%

120%

FY14 FY15 FY16

Revenue mix by customers Enterprise International customers & core equipment manufacturers China Telecom China Unicom China Mobile

PRC 84.5%

Asia Pacific 7.3%

Americas 4.4%

EU 3.1%

Middle East 0.6%

Others 0.1%

Revenue mix by geographical segment

R&D costs 13.0%

Selling and distribution expenses

31.1%

Administrative expenses

40.6%

Finance costs 2.7%

Taxation charge 5.8%

Other expenses 6.8%

Cost structure breakdown by FY16

Comba's total revenue and net profit decrease corresponds to the delays of open tender bidding from China Mobile, China Telecom, and China Unicom. Hence, projects were not accounted in time for the company’s annual results. As a result, Comba’s main customers who are also shared by its peers suffered margin squeezes in FY2016 as well. However, the future of mobile network operators looks hopeful considering 5G network developments. Comba’s management mentions its ongoing deployment of Small Cell and future growths of IP networks; it seems to be a preparation for 5G connections. We see a positive outlook for Comba as telecom operators in the mobile network industry are moving towards higher capacity and low network latency for greater cost-effective systems and better consumer experiences. We believe Comba’s big three customers’ low frequency refarming will increase data plans and consumption with much advanced network coverage and exceed its competitors as it has already started developing 4G base stations and 5G research & development. One of Comba’s main customers China Mobile mentioned that they have started 5G field tests in Shanghai, Beijing, Suzhou, Ningbo, and Guangzhou, and large-scale trials will start in 2018. Further, China Telecom has also started 5G field tests in Shanghai, Beijing, Guangzhou, and applied for 59 5G patents last year. This may stabilize Comba’s margins as it continues to provide network solutions for its three largest customers and there is no reason for a downturn in the company’s future.

Company Comba Telecom ZTE Mobi Tongyu Centron

Ticker 2342 HK 763 HK 947 HK 002792 CH 1155 HK

Market capitalization

(US$m)340 13,927 123 1,094 55

Revenue growth in FY16 -12.1% 1.0% -8.0% -8.3% 3.5%

Net profit growth in FY16 -28.5% -137.6% -26.6% -15.5% 129.6%

Gross profit margin (%)

Net profit margin (%)

26.1%28.3% 29.0%

10%

20%

30%

40%

FY14 FY15 FY16

2.2%3.1%

2.6%

0%

2%

4%

6%

8%

FY14 FY15 FY16

29.1% 29.0% 29.2%

10%

20%

30%

40%

FY14 FY15 FY16

3.2% 3.6%

-0.9%-2%

0%

2%

4%

FY14 FY15 FY16

22.8% 23.6% 24.2%

10%

20%

30%

40%

FY14 FY15 FY16

5.9% 5.7%

4.5%

0%

2%

4%

6%

8%

FY14 FY15 FY16

23.8% 22.7%

27.6%

10%

20%

30%

40%

FY14 FY15 FY16

2.6%3.2%

7.4%

0%

2%

4%

6%

8%

FY14 FY15 FY16

27.5%

20.0%18.2%

0%

10%

20%

30%

FY14 FY15 FY16

23.6%

18.6% 17.2%

0%

10%

20%

30%

FY14 FY15 FY16

2

Fig.9: Comba's share price flutuated accordingly post interim and annual results

Source: Bloomberg as of 14 Jul, 2017, Anli research

Source: Bloomberg as of 14 Jul, 2017, Anli research Source: Company data, Anli research

July 14, 2017

Fig.11: We forecast Comba's margins to stabilize in the next

few yearsFig.10: Comba's current P/E is lower than its peers average P/E

Comba’s GPM in 2012 dropped significantly due to: 1) Higher COGS to sales ratio; 2) Increase in competition; 3) Larger expenses of equipment in 4G network preparation. However, the Chinese government issued 4G mobile network licenses to PRC’s top three largest telecom operators at the end of 2013, which helped Comba’s margins to turnaround in 2014/2015. In 2016, the uncertainties in procurement of wireless network equipment, high cost of 4G network expansion, and 5G network trial developments squeezed the company’s margins. Comba’s management stated that the CAPEX will remain~HK$55m in FY2017E and business will ramp up for 5G network opportunities. Hence, the 5G network solution will support margin turnarounds, and we forecast the company’s net margin to stabilize in FY2017E and FY2018E at 3.8% /4.2%, respectively.

In the past two years, Comba’s share price reached HK$1.60 per share at its highest and HK$0.83 per share at its lowest. The price from late-August in 2015 to mid-February in 2016 was primarily affected by company investigations and lawsuits. Meanwhile, Comba’s stock price rebounded on better than expected FY2015 annual results and its win in the Brazilian patent case. However, the stock price dropped later on after the disappointing FY2016 annual results – a 36.1% drop at HK$1.01 per share. Again, we believe the current share price has already priced-in the negative factors, and the demanding valuation is attractive for investors. The company is trading at a P/E of 11.2x in 2017E and 9.5x in 2018E, which is lower than its historical valuation of 17.5x, and peers 2017E average of 12.2x P/E, representing a 36%/ 8.2% discount. Also, China authorization of 5G development is going to support the country’s largest telecom operators in the next couples of years. We predict Comba’s share price will be boosted by this favorable factor and likely to be a leading player in 5G in the next few years.

37.4% 36.6%

25.5% 23.9%

26.1% 28.3% 29.0% 30.0% 30.0%

16.9%

12.6%

-1.6% -1.8%

3.9% 5.9% 5.0% 5.7% 6.2% 13.9%

10.3%

-3.1% -4.2%

2.3% 3.1% 2.6% 3.8% 4.2%

-10%

0%

10%

20%

30%

40%

2010 2011 2012 2013 2014 2015 2016 2017E 2018E

Margins analysis

Gross margin(%) Operating margin(%) Net margin(%)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17

HK$/shr Comba (2342.HK) historical price performance

Company proposes grant of mandates to issue and repurchase shares

Revenue dropped 12.1% YoY in FY16

Suspension of trading on Oct. 13, 2015

Suspension of trading on Dec. 21, 2015 due to pending release of announcement relating to

Company board clarifies that group never gave instructions to offer bribes or illegal commissions

Comba wins in Brazilian civil patent infringement regarding antenna technologies

Company becomes designated supplier of two major subsidiaries of China Mobile (941.HK) in Femtocell projects

Comba acquires Jiafu Investments and increases shareholding in ETL to 51%

Company chosen as main supplier of LTE base antennas of China Telecom (728.HK) and wins tender bid for LTE CPE at China Mobile (941.HK)

Company enters into 3-year WTAP agreement with WaveLab Holdings commernding Jan 1, 2017

Civil case retrial by District Court ruled the approval of withdrawal of the prosecution against the Company

Company wins tender bids for China Telecom (728.HK) in providing 800M LTE base station antennas Comba wins Brazilian civil

patent infringement case and no further legal actions can be pursued by the litigant

Revenue/NP increased of 0.56%/42.4% YoY in FY15, with HK$1.8cents dividend in FY15

Comba's NP up 50.5% YoY in FY1H15, with HK$1.5cents dividend

Positive profit alert announced for FY1H15

NP rose 3.41% YoY to HK$311m in FY1H16

Comba's board lot size changed from 1,000 shares to 2,000

Resumption of trading on Oct. 14, 2017, after clarification that company did not receive materials on bribery investigation

Success in MDAS tender bid of China Mobile (941.HK)

Resumption of trading on Dec. 22, 2015, after Intermediate Court discharged rulings and orders case for retrial at District Court

Positive profit alert announced for FY15

Comba buys 24.99% of ETL at US$50m Repurchase of company shares

0

5

10

15

20

25

30

35

40

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17

(x) Comba historical P/E valuation

Comba P/E H-share peers average P/E

3

Source: Company data, Anli research Source: MIIT, Anli research

Fig.12: Recent acquisition of ETL's interest

July 14, 2017

Fig.13: Laos mobile penetration rate remain low compared to

other developing countries

Consideration...

• US$91.8m for a 51% interest in ETL via an associated company, Jiafu

When deal completed...

• 49% of ETL owned by Laos Government, 51% owned by Jiafu

• 4 nominated directors in the Board of ETL

• Funded by internal resources

About ETL...

• Established in 2000, stated-owned, Top 3 operator in Laos, covering 17 provinces and Capital Vientiane

• Full license w/ 1,200 BTS, 1m subscribers

• Mobile services, fixed line, roaming services, leased line, data services, internet etc.

• ~1,000 staff

Comba recently acquired a 51% interest in ETL for US$91.8m via Jiafu, 49% of which is owned by the Laotian Government. ETL was established in 2000 and ranks amongst the top three service providers in Laos, covering 17 provinces and the Capital with 1m subscribers including 350,000 mobile subscribers. It has around 1,000 staff and provides GSM, CDMA, WCDMA, and 4G networks to customers through mobile services, fixed line, roaming services, leased line, data services, internet, etc. Laos has a population of approximately 7m, and its GDP per capita totals to RMB11,000, which 40% of GDP is come from the services sector, includes telecommunications. As a country, there is high growth potential for ETL as Laos has a relatively low unique mobile penetration of 57% compared to other countries in Southeast Asia. Comba’s acquisition can drive equipment sales and gain exposure in Laos as an operator. Further, the Chinese Government provides tax incentives as part of the “One Belt One Road” initiative to bridge countries within its boundaries, which is economically advantageous to Comba. As China starts its 5G trials in hopes to become a leader in 5G networking, Comba’s advanced operations as a Chinese company may help ETL surpass its competitors and gain greater market share in the country as well.

57%

147%

50%

74%

47%

76%

Laos Vietnam Philippines Thailand Indonesia Cambodia

Mobile Penetration as of April 2017 (individuals subscribed to mobile service)

4

Source: MIIT, Anli research Source: MIIT, Anli research

Source: CAICT estimates, Anli research Source: MIIT, Anli research

Source: CNNIC, Anli research Source: MIIT, Anli research

Source: company data, MIIT, Anli research

July 14, 2017

Telecom industry overview

Fig.14: 3G/4G user growth continues after launch in China

Fig 15: 4G users increase at rapid rate compared to previous 2G and

3G networks

Fig.17: Western China users grow at steady rate while Central China

users slow

Fig.16: 5G sales estimated to contribute RMB$3.6trn to China's

GDP, representing a 24% YoY growth within 10 years

Fig.18: 95% of internet users access the internet through their

mobile phones Fig.19: Mobile network users ticking up in Western China

Fig.20: Evolution of future networks - higher speed, smaller coverage

20.9%

32.7%

45.3% 55.5%

71.2%

0%

20%

40%

60%

80%

100%

0

200

400

600

800

1000

2012 2013 2014 2015 2016

m (units)

Subscribed customers with 3G/4G mobile network in China

3G/4G users YoY growth94.5% 87.0%

79.1%

67.3%

54.7% 44.5%

28.8%

0%

20%

40%

60%

80%

100%

-300

-200

-100

0

100

200

300

400

2010 2011 2012 2013 2014 2015 2016

m (units) Net changes in China customers by mobile network

2G 3G 4G 2G YoY growth

0

1

2

3

4

2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

RMB (trn) 5G contributions to China's GDP

Direct contributions Indirect contributions

53.1% 50.9% 50.4% 50.6% 48.9%

24.5% 25.2% 25.4% 24.8% 25.5%

22.5% 23.9% 24.2% 24.6% 25.6%

0%

10%

20%

30%

40%

50%

60%

2012 2013 2014 2015 2016

Proportion of mobile network users in China by region

Eastern China Central China Western China

75% 81%

86% 90%

95%

0%

20%

40%

60%

80%

100%

0

200

400

600

800

2012 2013 2014 2015 2016

m (units) Users mobile phone access to internet

internet users % of internet users accessing using mobile phone

112% 113% 114% 113% 114%

79% 79% 79% 80% 82% 86% 86% 79%

89% 92%

0%

20%

40%

60%

80%

100%

120%

140%

1Q16 2Q16 3Q16 4Q16 1Q17

Mobile network penetration rate by region

Eastern China Central China Western China

China’s landline and traditional home phones accounted for 206m users, while mobile phone users reached 1.32bn in 2016. According to Ministry of Industry and Information Technology (MIIT), China’s mobile network penetration rate in 2016 reached 96.2%, and grew from 101%/74%/67% in Eastern, Central, and Western China in 2012 to 113.4%/80.2%/89.2% in 2016, respectively. As part of the “One Belt One Road” Initiative, more high-tech and high value-added industries are moving into Western China in cities such as Sichuan and Chongqing for greater market opportunities. As a result, mobile network users in this region showed the largest growth increase amongst Eastern and Central China as more groups and individuals are relocating to the West. Hence, we may see a continual increase in mobile penetration in China overall, particularly in the Western region. The MIIT announced that China anticipates becoming the largest 5G market in the world and has plans to spend RMB2.8trn on 5G networks from 2020 to 2030, where the market will account for 3.2% of its GDP in 2025. Further, GSMA and CAICT reports China’s 5G connections will reach 428m, 39% of global 5G connections by 2025. The market will primarily benefit network equipment and smartphone suppliers, internet companies and application developers, and telecommunications operators. In the secondary market, 5G will also support AVR and VR entertainment, IoT, super-HD video, and low-latency communications for applications in the new generation of technology. This will help stabilize the margin of Comba’s wireless system business and benefit the IT hardware industry in China.

2G 4G 5G

Standard GSM TD-SCDMACDMA2000

(EVDO RA)WCDMA

TD-LTE/LTE

FDDTBC

Frequency

Band (Hz)

800M-900M

1700M-1800M2010M-2025M 825M-880M 1900M-2110M 2.6G Higher

Theoretical

speed (bps)384K 2.8M 3.1M 42M 100M Faster

3G

5

Source: Company data, Anli research

Fig.22: Company's core businesses and products

Source: Company data, Anli research

Fig.23: Company's customers and operators in China, EMEA, APAC and the Americas

Source: Company data, Anli research

July 14, 2017

Fig.21: Company's milestones

1997

•Establishment of Comba Telecom

2003

•Listed on HKEX (2342 HK), establishment of first overseas office in Singapore and research institute in Virginia, US

2004

•Expansion of global business (EU & Asia)

2005

•Established research institutes in Nanjing, China & California, US

2006

•Commencement of R&D base, phase 1 in Guangzhou, China

2008

•Won coverage solution project for 2008 Olympic Venues & launch of digital products (GRRU, RRU)

2009-2011

•Extention of production base and R&D HQ in Guangzhou, China

•Launch of small cell solutions

•Won coverage solution project for Taiwan's high speed rail

2012

•Won coverage solution project for HK's high speed rail

2013

•Launch of innovative product series-iCell

2016

•Announced to acquire ETL's interest in Laos

•JV with Comdi Telecom for internet of vessels and VSAT business

FOS/mini-FOS microwave system

NIX wireless backhaul

Block up converter

Microwave modulator

Vehicle earth station

Portable earth station

Wireless transmission

Home Enterprise

Gateway WLAN

Wireless

MDAS AU MDAS RU

Multi-mode

BTS remote DAS

Digital remote Smart digital Multi-mode

Wireless enhancement

POI Camouflag

Multi-band LTE BTS

Antennas &

6

FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E

6,770.9 5,954.3 6,252.0 6,689.7 PP&E 608.0 538.0 483.5 480.9

(4,856.4) (4,225.9) (4,373.8) (4,680.0) Goodwill & intangibles assets 240.4 237.9 279.7 304.8

1,914.5 1,728.4 1,878.2 2,009.7 Others 318.2 691.9 735.6 797.3

49.9 173.7 148.1 192.5 Non-current asset 1,166.6 1,467.8 1,498.8 1,583.0

(230.9) (227.6) (273.1) (327.8) Inventories & trade receivables 5,698.7 5,200.4 5,191.4 5,401.2

(1,309.2) (1,253.7) (1,304.3) (1,358.5) Notes & other receivables 713.0 688.3 663.2 635.7

Other expenses (27.8) (119.1) (95.3) (100.1) Restricted bank deposits 249.3 178.2 227.8 238.2

Share of results of JV - (0.1) - - Cash 1,747.4 1,420.2 1,518.4 1,587.8

Share of results of an associate (0.1) (2.3) (0.1) (0.2) Current asset 8,408.4 7,487.1 7,600.8 7,862.9

Operating profit 396.4 299.3 353.5 415.6 Total assets 9,575.0 8,954.9 9,099.6 9,445.9

Finance cost (67.7) (47.0) (50.0) (53.5) Trade & other payables 4,325.1 3,999.1 3,822.9 3,726.0

PBT 328.7 252.3 303.5 362.1 Current tax payable 65.3 11.2 110.2 133.8

Income tax (109.8) (99.7) (64.7) (79.5) Short-term loans 595.5 693.7 763.0 839.3

Minority interest (6.1) (0.1) (0.3) (0.5) Others 86.9 70.5 67.1 80.5

Net Profit 212.9 152.4 238.5 282.1 Current liabilities 5,072.8 4,774.5 4,763.2 4,779.6

Long-term loans 775.4 673.2 584.3 520.0

FY15 FY16 FY17E FY18E Deferred tax liabilities 15.0 14.2 15.6 17.2

YoY growth Total liabilities 5,863.2 5,461.9 5,363.1 5,316.8

Revenue 0.6% -12.1% 5.0% 7.0% Total equity 3,711.8 3,493.0 3,736.5 4,129.1

Gross profit 8.8% -9.7% 8.7% 7.0% Minority interest (59.3) (55.5) (57.7) (60.0)

Operating profit 50.6% -24.6% 18.1% 17.6% Shareholders capital 3,652.5 3,437.5 3,678.8 4,069.1

Net profit 40.9% -28.5% 56.4% 18.3%

Margin analysis Cash flow (HK$m) FY15 FY16 FY17E FY18E

Gross margin(%) 28.3% 29.0% 30.0% 30.0% Profit before tax 328.7 252.2 303.5 362.2

Operating margin(%) 5.9% 5.0% 5.7% 6.2% Depreciation 100.0 76.6 83.7 91.5

Net margin(%) 3.1% 2.6% 3.8% 4.2% Amortization 75.0 65.7 62.5 59.5

COGS/sales(%) 71.7% 71.0% 70.0% 70.0% Interest income (14.5) (7.9) (10.7) (11.1)

SG&A/sales(%) 19.3% 21.1% 20.9% 20.3% Working capital changes 588.5 25.6 102.5 153.8

Others 86.4 127.1 97.3 84.1

Ratios FY15 FY16 FY17E FY18E CFO 1164.1 539.3 638.8 740.0

Net gearing(%) net cash net cash net cash net cash Income tax paid (74.6) (127.6) (153.1) (183.7)

Current ratio(x) 1.7 1.6 1.6 1.6 NCFO 1089.5 411.7 485.7 556.3

ROE(%) 5.8% 4.3% 6.6% 7.2% CAPEX (58.1) (52.5) (51.9) (62.3)

ROA(%) 2.3% 1.6% 2.6% 3.1% Others (121.1) (483.3) (404.7) (437.1)

Inventories days 149 133 119 133 CFI (179.2) (535.8) (456.6) (499.4)

Receivable days 225 239 220 201 Repurchase of shares (9.3) - - -

Payable days 251 266 222 191 Dividends paid (49.6) (70.2) (61.7) (52.5)

Source: Company data, Anli research estimates Increase in debt (263.1) 9.5 196.2 382.8

Others (63.8) (46.7) (50.1) (53.5)

CFF (385.8) (107.4) 84.4 276.8

Foreign exchange (51.8) (95.6) 0.0 0.0

Net change of cash 524.5 (231.5) 113.5 333.7

FCF 1031.4 359.2 433.8 494.0

Company description

July 14, 2017

Balance Sheet (HK$m)

Comba Telecom: Financial summary

Profit and Loss (HK$m)

Revenue

Other income and gains

SG&A expenses

Research and development costs

Earning growth drivers

COGS

Gross profit

Comba Telecom (2342.HK) primarily serves as a wireless solutions provider to its customers in the PRC through its national sales and services network. The company also offers antennas and subsystems, wireless access, and wireless enhancement to customer worldwide, and has its own R&D facilities, manufacturing base, and sales and services teams.

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July 14, 2017

Important legal disclosures

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