By He Chuan

During the two sessions this year, Ministry of Industry and Information Technology (MIIT) indicated that the 4G license is expected to be issued within this year, which leaves imaginary room for the market and 4G concept stocks also have become hot spots recently.

Wind data shows that 4G concept stocks have entirely risen by 34.48 percent, while the CSI 300 index has decreased by 0.62 percent from the beginning of the year to May 20. In view of industry plates, information equipment plate increases by 31.18 percent according to primary industry category of Shenyin©}Wanguo Securities in terms of industry segments. Subsidiary segment of communication equipment closely related to 4G is also anti-trend rising by 33.54 percent

Increasing industry investment

Over the past two years, the telecom equipment plate is particularly sluggish. It dropped by 35.41 percent and 21.47 percent respectively in 2011 and 2012. "After experiencing 3G and optical-communication, since 2011, the overall investment growth of communications industry has been slowed down, accompanied by decline in the profitability of industry equipment suppliers and heavy losses of partial enterprises, which makes the industry index have lagged behind the broader market for a long run," said Li Mingjie, the industry analyst of Industrial Securities communication.

While since the beginning of this year, China Mobile plans to establish more than 200,000 4G base stations and purchase over millions of TD-LTE terminals. It will invest more than RMB40 billion yuan in the TD-LTE field, up to nearly 10 times over last year. Dai Chunrong, the analyst of China Securities thinks that communications industry itself has a certain periodicity that is mainly associated with the investment pace of operators. The 4G construction scale is expected to achieve the win-win results of the company's performance and market performance, which emerged in 2009 during 3G construction period.

Recently, eight ministries and commissions including MIIT issued Suggestions on the Implementation of BDChina Special Action in 2013 which provides policy support, financial support and construction planning etc. to promote the implementation of "BDChina" project, and this is expected to benefit the broadband equipment and services segments constantly. Li Mingjie believes that under the current background of industrial structure transformation and upgrade, it is significant to accelerate the development of communication industry, and therefore we cannot simply look on the industry development and 4G network construction in the next 2 or 3 years from the perspective of operator's needs.

"With the start of large-scale 4G investment construction, market competition will reversely force other operators to increase investment. Under the background of frequent dividend policy and increased investment force, the prosperity of entire communication industry and performance of equipment manufacturer are expected to be promoted correspondingly, 4G Concept may be one of the highlights this year."

Performance is the key in the future

Despite the current market expectation of 4G concept stocks is good, seeing from the whole 4G industry chain, individual benefit will present differentiation due to different upstream and downstream positions.

Li Mingjie said that from the point of investment return timing, manufacturers engaging in network planning design and engineering construction will be the first to get profits; secondly are the main equipment suppliers and transport corollary equipment suppliers; then manufacturers for network optimization and services etc. The downstream companies of mobile phone application software are also expected to get benefits along with the improvement of network quality.

"4G construction will greatly boom the whole industry chain, but multiple factors should be considered in term of the influence on individual share trend, such as issue time and standards of license, the specific circumstance of investment construction and the performance of related listed companies," said Li Mingjie.

Wu Youwen, the analyst of Orient Securities, thought that the key issue that telecommunications equipment industry faced with is still the profit of company. Despite the 4G concept is motivating the market, the overall reverse of industry profitability has not been changed. In addition, 4G investment construction is still confronted with a lot of uncertainty factors. For instance, China Mobile tender is later than market expectations, and the bidding form is not clear; the fierce bidding among the main equipment dealers can result in the carrier frequency unit price lower than the expectation, thus there exist certain price risks.

For the future market trends of 4G concept stocks, Li Mingjie indicated that due to the big rise recently, it is possible that some individual shares carry out profit-taking after the issue message of 4G licenses is clear. But 4G investment construction process is relatively a long-term process and the whole industry is still expected to keep a certain growth rate in the next two years, thus the company's performance is the foundation that finally determines whether the share price will continue to go up or not.