Investment Highlights
 
        Revenue growth of telecommunications falls and investments have not taken off. From January to September, total revenue earned in the telecommunications sector was RMB610.02 bn, up by 8.3% YoY, continuing the trend of slight decrease in growth rate. Meanwhile, fixed asset investments in telecommunications is RMB167 bn, up by 9.2% YoY, which indicates that telecommunication investment has not taken off.
        Number of new mobile phone subscribers temporarily rebound. 8.029 mn new subscribers were added in September, a slight rise over last month. Penetration rate of mobile subscribers has reached 47.3. Number of new subscribers between January and September went up by 23.3% YoY, implying a continuous slowdown. In September, the number of fixed phone subscribers declined by 920,000 and penetration rate went down to 26.8. Number of new broadband subscribers is 80.81 mn and the YoY increase of total new users is 28.6%.
        China Mobile maintains advantage ARPM, but MOU falls for the first time. From January to September, ARPU of China Mobile and China Unicom's G net is RMB83 and RMB43 respectively, MOU is 493 and 244 minutes respectively, and ARPM is RMB0.169 and RMB0.175 respectively. China Mobile's MOU registered the first decline, indicating the MOU ceiling.
        Economic slowdown has not caused general impact on overseas carriers and some equipment suppliers are mired in difficulties. While tracking Q3 results of some carriers, we found that main carriers in U.S. and Korea are enjoying stable earnings, but carriers in Japan and Europe are suffering from a heavy blow and carriers in certain emerging markets are witnessing slowing growth. Equipment manufacturers are exposed to the largest impact and earnings of Nokia, Motorola and Alcatel-Lucent are dropping.   
        We are still optimistic towards the future growth of leading equipment manufacturers. Recently, prices of telecommunications stocks were plunging. It would be an inevitable trend that start of 3G will initiate the upbeat business climate of equipment suppliers and operating difficulties of foreign equipment suppliers will create new strategic opportunities for leading equipment manufacturers such as ZTE and Huawei, etc. Thus we reiterate the investment rating of "Outperform" for equipment manufacturers. Key recommendations are ZTE, Guomai Technologies, and Wuhan Fingu, etc.
        We are projecting value growth of carriers under the facilitation of 3G and value added services. Valuation for carriers has dropped to historical bottom and the sector has strong defensive value since its sector characteristics are stronger than economic cycles. 3G and value added business will be material drivers for value growth of carriers next year. Therefore, we upgrade the investment rating for telecommunications to "Outperform". In terms of growth momentum, the new China Unicom is the best choice, while in terms of value growth, China Telecom and China Mobile are more attractive in terms of valuation. In the current market environment, all three stocks entail outstanding investment value.