Top Picks: HFR, Gigalane, and RFHIC
The author is an analyst of Shinhan Investment Corp. He can be reached at ym.ko@shinhan.com. -- Ed.
2022 likely to be different from 2021
Companies saw a meaningful rebound in both earnings and share prices in 1H21 on the start of shipments to Samsung Electronics for equipment bound for Verizon. However, a sharp decline seen from September 2021 in orders from Verizon, presumably due to the issue of potential interference with US airline frequencies, caused earnings to continue downward in 2H21. Relevant concerns were lifted as Verizon, on January 19, 2022, reached an agreement with the US Federal Aviation Administration regarding the deployment of C-band 5G towers excluding certain areas near airports.
Earnings visibility has improved for 1H22, with vendors in the Samsung supply chain resuming shipments for equipment bound for Verizon and domestic telcos. Going forward, we believe full-year earnings growth will hinge on 2H22 results.
Outlook brighter for 2H22 vs. 2H21
Unlike 2H21, we hold an upbeat outlook on supply and earnings trends for 2H22.
1) Larger capex spend by Verizon and other US telcos: The US Federal Communications Commission (FCC) held an additional auction of the mid-band spectrum for 5G (Auction 110) in October 2021, with aggressive bidding seen from both AT&T and T-Mobile. North American telcos in general are expected to increase their capex spend this year.
2) Newcomer in the US wireless market: DISH Network is entering the US wireless market as the fourth national mobile network operator. The company's commitments to the FCC include establishing more than 30,000 base stations to provide a 5G broadband network capable of serving 70% of the US population by June 2023. Vendors in the Samsung value chain stand to benefit from the agreement between Samsung Electronics and DISH Network for the supply of 5G network equipment.
Resumption of 5G investments in countries other than the US: With the world emerging from the COVID-19 pandemic, 5G investments are also expected to resume in Japan, Europe, Canada, and India. Vendors in the Samsung supply chain should start to supply products for shipment to these countries from 2H22.
Shift toward private 5G (specialized) networks to start in earnest
Major domestic companies, starting with NAVER, are planning to set up their own private 5G networks this year, creating a new market for equipment makers. With a growing number of companies including LG CNS and KEPCO setting plans for private/specialized networks, demand should continue to expand going forward. New business opportunities will open up for small/mid-size equipment makers, with participation in private 5G projects likely to lead to equipment orders worth over KRW100bn per contract.
-- Top picks: HFR, Gigalane, and RFHIC
-- Stocks of interest: InnoWireless, Ace Technologies