Hytera Communications:Well poised for upcoming boom
Broadband-Narrowband convergence and emerging markets major catalysts for global private network growth over the next seven years.Analog and digital communications respectively underpinned 55%and 41%of the global private network market in 2016, with analog expected to contract to 32%and digital expand to 61%by 2020, accordingto IHS. Theswitch from analog to digitalin recent yearshas boosted revenues for private network system and terminal providers, while the next seven years will see broadband-narrowband convergence and emerging markets pick up the baton todrive the next wave of growth, with global broadband private network market size anticipated to advance at a CAGR of over 23%to USD2.6bn by 2020, and emerging markets in regions likeSouth America, countries along the Belt and Road and Africa estimated to be worth an aggregate RMB150bn for years to come.
Hytera, one of few companies in the world that can providea full suite of cutting-edge Professional Digital Trunking (PDT), digital mobile radio (DMR)and Terrestrial Trunked Radio (TETRA)products and solutions,is poised for solid growth over the next two yearson the back of: (1) its predominant position in the public safety field; (2) rising market shares in the metro transportation and commercial sectors thanks to its leading DMR/TETRA technologies; (3) continuously high input into R&D to shorten the gap with broadband system vendors; and (4) an extensive global sales network of nearly 1,000 dealers around the world.We thereby projectHytera to reach a revenue of RMB5.4bn/7.7bn in 2017/2018, up 58%/41% YoY. Recommenda Buy rating.
Risk factors:(1) rivalslike Huawei and TD Techwill keepchipping away atHytera, in our view; (2) expansion in the European private network market may be held back by fiercecompetition; (3)Sepuramay continue to lose money if its integration misses expectations; and (4)Motorola Solutions’s ongoing patent actions against Hytera in the US, Germany and Australia expose Hyterato substantial claimsrisks.
