China's optical fiber and cable industry rebounded in 2006 after a three-year decline, with total sales volume up 35 percent. But it is still hard to say whether the industry would maintain the growth momentum.
Owing to the continued low prices of optical fiber and cable, only market leading companies who adopt scale expansion strategy can benefit from the industrial rebound.
-- Profit posts sustained growth
Jiangsu Hengtong Photoelectric Stock Co., Ltd. (SH: 600487), China's leading optical fiber and cable company, disclosed that its main operation turnover reached 637.85 million yuan in the first three quarters of 2006, up 29.71 percent year on year. Its main operating profit was 136.23 million yuan in the period, 22.96 percent higher than in the year-earlier period, while its net profit grew by 24.8 percent to hit 43.35 million yuan.
Another market leader, Fiberhome Telecommunication Technologies Co., Ltd. (SH: 600498), completed 391 million yuan in its total optical fiber and cable sales in Jan.-Sept. 2006. Though it was 6 percent lower than the 417 million yuan in the same period of 2005, the gross profit margin of Fiberhome's optical fiber and cable products rebounded from 9 percent to 14 percent.
Statistics show that China's optical fiber and cable demand will reach 20 million kms. It is expected that sales volume of the whole industry would jump 35 percent. In the first three quarters of 2006, the sales volume of optical fiber and cable of Hengtong surged by 61 percent and 44 percent respectively.
The construction of information infrastructure, such as broadband telecom network, digital TV network and NGI (next-generation Internet) , will push up the demand of optical fiber and cable, as well as the 3G construction, which is expected to bring a demand of three million to four million kms of optical fiber in the next five years. Meanwhile, the demand will be also raised by the Olympic Games 2008, the development of west China, the national project to "extend telecom coverage to every village" and the establishment of the FTTH market, which will enlarge the demands of China's public network operators continually. Besides, enterprise special network users will have even larger demands for optical fiber and cable, due to the industrial informatization construction.Statistics from the Ministry of Information Industry show the fixed assets investment of China's telecom industry reached 142.48 billion yuan in Jan.-Sept. 2006, up 17.7 percent year on year, though it had maintained a negative growth for several years. Analysts believed the rapid growing investment in the period indicated a new round of telecom investments.With investment from the telecom operators, China's optical fiber and cable industry promises a good performance. In the first half of 2006, the profit of China's optical fiber and cable manufacturing industry grew 160 percent over the year-earlier period. The industry maintained a continuous quarterly growth in profit, and the profits in the recent two quarters have for the first time in recent years doubled those in the same periods of 2005. In the third quarter of 2006, the profit growth of the manufacturing industry may exceed 100 percent. -- Market prospect still unclear
In spite of the rebound of China's optical fiber and cable industry in the period, its market prospect still remains uncertain.
Wu Fei, an analyst at Orient Security, also attributed the performance of the industry to the expansion of the national project to "extend telecom coverage to every village" and the 3G construction. But the 3G construction may not give a strong enough push to the industry, while the IPTV construction, which is also expected to pose a large demand for optical fiber and cable, is a long-term prospect and will not show its influence in the short term. So Wu predicted the demands will grow at much slower paces in the future.
Another analyst said the 3G construction during 2007-2008 would keep China's optical fiber and cable industry in a steady rebound. And its rapid development depends on whether China will launch large- scale construction of the FTTH project.
At present, ADSL is still the mainstream of broadband access in China that cannot be replaced by FTTH in the short run. It is learned that the cost of ADSL1 in the large-scale usage is lower than 600 yuan per line, while that of ADSL2+ will not exceed 1,500 yuan in the earlier stage. But the cost of FTTH, including costs in equipment and lines, was a hefty 4,500 yuan in 2005 and will still be 2,000 yuan in 2008. So the analyst predicted that FTTH would not go into large- scale construction before 2008.
-- Industry leaders benefit more from the rebound
"Only the leading companies will make profit during the rebound of the whole optical fiber and cable industry," said Chen Liang, an analyst with Guotai Junan Securities.
The telecom operators in China will become more rational and cautious while launching investment or construction, while China's telecom market is thoroughly opened and the competition among operators becomes fiercer. The analysts here predicted China's optical fiber and cable industry would not relive its rapid development before 2001. The new competition situation and the integrated procurement of operators will characterize the optical fiber and cable sales with low prices.
In such a circumstance, the scale expansion and industrial integration will become the main features of China's optical fiber and cable industry. At present, the top three companies of the industry make up 60 percent of the whole market, including the Yangtze Optical Fiber and Cable Co., Ltd. (YOFC), about 35 percent, Hengtong, 17 percent, and Fiberhome, 12 percent.
Hengtong is attracting the most attention now thanks to its new project of optical fiber perform rod production line. The project is the key of Hengtong's expansion strategy. Experts here predicted that Fiberhome would not get improved in the short-term, while the future of the Jiangsu Zhongtian Technologies Co., Ltd. (SH: 600522) and the Sichuan Huiyuan Optical Communications Co., Ltd. (SZ: 000586) are still unclear.
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