海能达(002583)

Broadband-Narrowband convergence and emerging markets majorcatalysts for global private network growth over the next seven years.Analog and digital communications respectively underpinned 55% and41% of the global private network market in 2016, with analog expectedto contract to 32% and digital expand to 61% by 2020, according to IHS.The switch from analog to digital in recent years has boosted revenuesfor private network system and terminal providers, while the next sevenyears will see broadband-narrowband convergence and emergingmarkets pick up the baton to drive the next wave of growth, with globalbroadband private network market size anticipated to advance at a CAGRof over 23% to USD2.6bn by 2020, and emerging markets in regions likeSouth America, countries along the Belt and Road and Africa estimatedto be worth an aggregate RMB150bn for years to come.

Hytera, one of few companies in the world that can provide a full suiteof cutting-edge Professional Digital Trunking (PDT), digital mobile radio(DMR) and Terrestrial Trunked Radio (TETRA) products and solutions, ispoised for solid growth over the next two years on the back of: (1) itspredominant position in the public safety field; (2) rising market sharesin the metro transportation and commercial sectors thanks to its leadingDMR/TETRA technologies; (3) continuously high input into R&D toshorten the gap with broadband system vendors; and (4) an extensiveglobal sales network of nearly 1,000 dealers around the world. Wethereby project Hytera to reach a revenue of RMB5.4bn/7.7bn in2017/2018, up 58%/41% YoY. Recommend a Buy rating.

Risk factors: (1) rivals like Huawei and TD Tech will keep chipping away atHytera, in our view; (2) expansion in the European private networkmarket may be held back by fierce competition; (3) Sepura may continueto lose money if its integration misses expectations; and (4) MotorolaSolutions’s ongoing patent actions against Hytera in the US, Germany andAustralia expose Hytera to substantial claims risks.