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Accelerating Cap-Ex Ramp

Given (1) announcement of 5G tenders; (2) easing of supply constraints; and (3) stabilising of the regulatory environment, an acceleration in Cap-Ex could be a core earnings improvement driver for the Chinese communication infrastructure supply chain.

Regulatory overhang could stabilise in the final months of 2021, with long-term fundamentals for most sub-sectors staying intact. Thus supported by government guidelines and policies, the pace of 5G roll-out and data traffic growth continues despite the rate of historical spending we've seen this year.

Server, datacom optical transceivers, and IDCs may be better-positioned sectors for easing internet sector regulation and resulting Cap-Ex spending in the supply chain. More specifically, the IDC sector may see a recovery from recent overly pessimistic outlook scenarios and multiple pull-backs.

@CliveCheung's analysis suggests 5G roll-out will continue while Datacom growth accelerates. Heightened regulatory concerns look to be receding. Our findings indicate that rather than being cancelled, demand was simply delayed. Generally, most sub-sectors saw a limited impact on long-term fundamentals. 5G roll-out and data traffic growth continue to drive demand and are well-supported by government policy.

@Clive Cheung