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FIBERHOME TELECOM TECH. (600498)

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2012-07-08 10:53:27
           What’s new
       Fiberhome said today that its private placement has successfully completed at a final price of Rmb25.48/sh and with 39.5mnshares issued.
       Comments
       We believe the arbitrage funds that earlier traded stocks at Rmb26~29/sh will largely quit after the private placement, whichshould help the stock price return to fundamentals and the policy-driven investment theme.
       Recently, the bid prices of CU’s IPRAN, CT’s PON and optical fiber and cable bid invitations were stable relative to last year.
       The company’s 1Q12 revenue growth and GM were both better than expected. GM should further widen in 2Q12 as settlementof some high-GM products will take place; bid invitations for CM’s transmission network and CU’s PON and optical fiber andcable will all start in 3Q12, and bid prices should remain stable throughout the year according to the 1H12 situation. We expect3Q12 to usher in a peak season for revenue recognition.
       According to our communication with Ministry of Industry & Information Technology officials yesterday, the BroadbandChina strategy will be finalized in late July, submitted to each competent authority and the state council for final approval inAugust, and officially issued as an independent policy in about October. Meanwhile, CM’s winning a license to operatefixed-line network business and the setting up of a national cable network company are also positive to the opticalcommunications equipment sector.
       Valuation and recommendation
       We suggest investors gain exposure to Fiberhome to take advantage of the share price correction after its private placement.
      The current price of Rmb24.9/sh is below the private placement price and implies 20x 2012e P/E; annual net profit growth isexpected to be >30% for the next two years; the 3Q revenue recognition peak and 4Q12 policy support should both push up thestock price. Given such clear investment logic and visible earnings growth, we maintain a BUY rating.
       Risks
       Broadband China strategy missing expectations.
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