Event:
On May 20, 2022, China United Network Communications Limited(600050) issued the publicity of candidates for winning the bid of China United Network Communications Limited(600050) local network optical cable centralized procurement project in 2022. A total of 12 manufacturers won the bid, and the bidding quotation range was 2.391 billion yuan ~ 2.748 billion yuan.
Our comments are as follows:
1. Volume: digital economy + digital computing from east to west is expected to promote the continuous growth of optical cable demand
From the perspective of quantity, the centralized procurement of optical cable is 1.44 million skin kilometers, and the length of corresponding core kilometers is not disclosed. In view of the bidding requirement that the annual production capacity of the applicant's single sheath ordinary optical cable products (converted according to 24 cores) reaches 1.2 million core kilometers, it is calculated based on 24 cores - 36 cores. We expect the corresponding length to be 34.56-51.84 million core kilometers, with a median of 43.2 million core kilometers. Plus the previous centralized procurement of 143 million core kilometers by China Mobile and 43.1 million core kilometers by telecom, the total centralized procurement of the three operators exceeds 220 million core kilometers.
The development of digital economy + the project of digital computing in the East and digital computing in the West promote the demand for optical cables. China continues to promote the development of digital economy, and 5g construction is in full swing. In 2021, the number of 5g base stations in China reached 1425000, a significant increase over the end of last year. At the same time, the Gigabit network continues to be built. In 2021, the number of users with access rate of 1000Mbps and above was 34.56 million, a net increase of 28.16 million over the end of the previous year. As a result, the data flow has increased rapidly, driving the continuous construction of optical fiber and cable + optimization demand. In addition, "counting from the east to the west" promotes the moderate agglomeration and intensive development of the national data center, which will speed up the opening of the direct data connection channel between the East and the west, optimize the communication network structure and improve the network transmission quality. It is also expected to drive the demand for optical cable construction and optimization.
2. Price: it is expected to remain stable, confirming the judgment of continuous prosperity of optical communication
Price and share: the bid price basically falls in the range of 2.567 ~ 2.748 billion (excluding tax). A total of 12 manufacturers won the bid, among which Hengtong, Zhongtian, Changfei, Futong and Fenghuo all won the bid with the highest price of 2.748 billion yuan, with a share of 2, 3, 4 and 6 respectively. If estimated by the median value, the unit price is about 63.6 yuan / core kilometer. It can be seen that the quotations of several large manufacturers are the highest with tacit agreement, and they all get a better share. According to the previous bidding results of China Mobile's common cable, the bidding price of China Mobile's common cable increased by more than 50% in 2021. The comparison between the bidding price of China Unicom and that of China Mobile is expected to remain stable, which confirms our previous judgment that optical communication will continue its business cycle.
3. The relationship between supply and demand is expected to continue to improve, and the cost drop will improve the profitability of optical cables
Looking forward to the future, the demand side will benefit from the growth of traffic, Eastern digital computing and Western computing, Gigabit broadband, etc., showing a sustained and stable growth trend, while the production expansion progress of the supply light rod will slow down significantly after the previous cable bidding price cuts, and even we expect that the supply will shrink slightly later. Therefore, we judge that the relationship between supply and demand will continue to improve, and it is expected to reach the balance / tight balance between supply and demand. The price of optical fiber and cable is expected to rise steadily in the next two years, At the same time, the price of raw materials also began to fall, so the profitability of optical fiber and cable can be continuously improved.
4. Actively pay attention to the leading manufacturers in the optical fiber and cable industry
Investment suggestion: the optical fiber and cable industry is going through the initial stage of recovering from the trough / bottom, the supply and demand will continue to improve, the industry is expected to usher in a new round of business cycle, the profitability of optical fiber and cable is expected to continue to improve, and the sector is at an undervalued / low level. Key recommendations: Jiangsu Zhongtian Technology Co.Ltd(600522) (the layout of the whole rod fiber cable industrial chain, the continuous high boom of offshore wind power business, and the rapid growth of new energy business are expected) Hengtong Optic-Electric Co.Ltd(600487) (the layout of the whole industry chain of rod fiber cable, the leading manufacturer of offshore wind power, the high barrier of marine communication and the leading market share of the company). It is suggested to pay attention to: Yangtze Optical Fibre And Cable Joint Stock Limited Company(601869) (Hong Kong shares and a shares).
Risk warning: the construction progress of digital economy is lower than expected, the capital expenditure of operators is lower than expected, the industry competition is higher than expected, and the epidemic affects the construction demand
