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November 1, 2017

China: Communications Technology

Equity Research

Walkie-Talkie 2.0

What is unique about Professional Mobile Radio (PMR)?

PMR is a type of wireless communication designated for mission-critical use

cases. Networks typically consist of devices (the simplest form is a walkie-

talkie), base station, and control center equipment. PMR offers various unique

qualities that are valued by its customers (police/fire departments, railway/

subway operators, etc.), including: (1) better confidentiality – it operates in

a designated radio spectrum, (2) higher reliability – it is designed for

extreme conditions/worst-case scenarios, (3) proprietary ownership – it is

operated for the exclusive use of the owner, and (4) more cost efficient – vs.

public wireless networks as it is usually built at lower spectrum bands.

Introducing our proprietary China PMR industry model (Exhibit 11)

China remains one of the fastest growing PMR markets in the world.

Following strong CAGR of 13% over 2011-2016, we expect this to continue

with 14% CAGR from 2016-2020E and the addressable market size reaching

RMB13.5bn (US$2bn). Key drivers of this growth are higher PMR device /

equipment penetration and the ongoing analog-to-digital upgrade. We

conduct a bottom-up analysis on the growth drivers of three key demand

sectors, i.e., public safety, public utilities and commercials, which in 2016

accounted for 46%, 37% and 17% of the total PMR market in China.

PMR in a global context

Although slower than the growth of China’s PMR market, we expect the

global PMR industry to see 5% CAGR from 2016-2020E, reaching a market

size of US$11.6bn by 2020E, mainly driven by: (1) penetration increase in

developing markets, (2) strong replacement demand due to technology

upgrade from analog to digital, and (3) policy tailwinds on improving

nations’ security awareness (e.g., the China 13th Five-Year Plan, Europe

Horizon 2020, and the US Homeland Security budget plan). The global PMR

market is highly concentrated, with high customer stickiness, low customer

concentration, and stable ASP characteristics. As such, existing players

such as Hytera and Motorola Solutions (MSI), with strong industry position

and technology, look well positioned to benefit from the growing demand.

Key recommendations: initiate on Hytera at Buy with 21% upside

On the back of a strengthening market position (domestic and overseas),

improving profitability, and supply chain consolidation, we initiate on

Hytera at Buy with our 12m TP of RMB23 implying 21% potential upside.

Among PMR global comps we are Buy-rated on MSI and Harris in the US.

CHINA’S PMR MARKET IS SET TO GROW AT 14%

CAGR AND REACH RMB13.5BN BY 2020E

Source: China Industry Research (www.cir.cn), Gao Hua Securities Research

HYTERA IS THE DOMINANT PLAYER IN CHINA WITH A

23% SHARE OF THE PMR MARKET

Source: Company data

RELATED RESEARCH

Hytera Communications Corp. (002583.SZ) Buy: Radio Star –

initiate at Buy, November 1, 2017.

Motorola Solutions Inc. (MSI) Buy: Assume coverage: into

the next era of Services-led growth; up to Buy, June 30,

2016.

Tina Hou +86(21)2401-8694 [email protected] Beijing Gao Hua Securities Company Limited Goldman Sachs does and seeks to do business with

companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

Bowen Bao +65-6654-5018 [email protected] Goldman Sachs (Singapore) Pte

The Goldman Sachs Group, Inc. Global Investment Research

9%11% 11%

12%

15%13% 12%

15%14%

13%12%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

China PMR market size (RMB mn) % yoy

Hytera, 22.9%

MSI, 14.8%

Eastcom,

5.3%

Kenwood,

4.5%Haige, 3.3%

Harris, 2.4%

TD-Tech,

5.4%

Others, 47.6%

China PMR market share (2016, US$)

November 1, 2017 China: Communications Technology

Goldman Sachs Global Investment Research 2

Table of contents

Industry overview: Understanding professional mobile radio (PMR) 3

Goldman Sachs proprietary China PMR industry model 8

Global government support underpins PMR industry growth 11

PMR vs. MNO: Complementary rather than cannibalistic 13

Appendix 1: PMR standard comparison 16

Appendix 2: Glossary of terms 21

Disclosure Appendix 22

Pricing in this report is as of November 1, 2017, unless specified otherwise.



Industry overview: Understanding professional mobile radio (PMR)

Professional mobile radio (PMR) is the term used to describe the form of two-way field

radio communications system used by many public safety and commercial organizations

around the world. PMR is also known as private mobile radio (PMR) in the UK and land

mobile radio (LMR) in North America. By the end of 2016, an estimated 50 million PMR

users globally were communicating over PMR radio networks, generally through two-way

radios that are either carried by individuals or installed in vehicles or control rooms.

Organizations that utilize PMR networks generally operate over a wide geographical area

with multiple users coordinated from a central control room and so require instant

communication between individuals or pre-defined user groups.

As of 2016, we estimate the global PMR market was a US$10bn industry, growing at mid-

single digit yoy. Demand for PMR products is mainly from public security (police

department/fire department), the utilities sectors (subway/railway/oil pipeline/airports), as

well as commercial sectors (residential/commercial/industrial property). We expect the

global PMR industry will continue to grow at 5% CAGR over 2016-2020E (in line with the

average sales growth seen by major global PMR companies over the past three years) to

reach the addressable market size of US$11.6bn by 2020E, driven by: 1) penetration

increase in developing markets, 2) strong replacement demand in developed markets due

to technology upgrade from analog to digital, and 3) policy tailwinds on improving nations’

security awareness (e.g., the China 13th Five-Year Plan, Europe Horizon 2020, and the US

Homeland Security budget plan).

For China, we forecast the PMR market to grow at a faster speed than the global market, at

14% CAGR from 2016-2020E (13% over 2011-2016), as we see strong potential from lagging

penetration vs. developed markets, policy tailwinds from China’s 13th Five Year Plan, and

increasing upgrade/replacement demand from analog to digital.

Exhibit 1: Global PMR industry to grow at 5% CAGR from

2016-2020E to reach the addressable market size of

US$11.6bn

Exhibit 2: China PMR market to grow at a much faster

speed of 14% CAGR from 2016-2020E

Source: ResearchandMarkets.com, Gao Hua Securities Research

Source: China Industry Research (www.cir.cn), Gao Hua Securities Research

9.5

11.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2014 2015 2016 2017E 2018E 2019E 2020E

Global PMR market size (US$ bn)

9%11% 11%

12%

15%13% 12%

15%14%

13%12%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

China PMR market size (RMB mn) % yoy



Key characteristics of the global PMR industry

1. High levels of concentration: The global PMR market is highly concentrated, with the

top five players taking up 70% of the market, and the top one (MSI) accounting for

more than 50% of market share as of 2016. China is relatively behind on the curve, with

the top five players taking up more than 55% of market share, and the top one (Hytera)

with over 20% market share having gained momentum as a consolidator through both

organic growth and external acquisitions.

2. High customer stickiness: Customer stickiness is very high for the PMR terminals and

system equipment, especially for the government sector which procures through a

bidding process and requires highly customized products. A PMR network has an

average life of seven to ten years. Although there are open standards for the

equipment (e.g., TETRA, DMR, P25, PDT), vendors add a lot of non-compatible

functionalities above the transmission level.

3. Low customer concentration: Customer structure for the PMR industry is similar to

that of the video surveillance industry, in our view, with public security demand taking

up 40%-50% of total annual sales. For MSI, the U.S. federal government (through

multiple contracts with its various branches and agencies, including the armed

services), and the Home Office of the United Kingdom are its largest customers,

representing approximately 9% and 8% of its total revenue in 2016, respectively,

according to the company. For Hytera, the largest five customers accounted for 13% of

its total revenue in 2016, with the top one contributing 4%.

4. Stable ASP: Because of the relatively consolidated nature of the PMR industry and low

concentration of customers, it has not seen a material ASP decline on an annual basis

like some of the other tech sectors over the past five years. Instead, ASP has been

relatively stable with only low single digit decline on a very gradual basis. With the

upgrade from analog to digital, blended ASP is actually increasing every year (as

shown in Exhibit 11).

Who are the largest PMR players?

Exhibit 3: Second to MSI with 53%, Hytera holds 8% of

global PMR market share (post its acquisition of Sepura)

Exhibit 4: In China, Hytera is the dominant player with a

23% share of the PMR market

Note: Hytera completed its acquisition of Sepura in May 2017.



MSI, 53.0%

Hytera, 5.8%

Kenwood,

4.1%

Harris, 4.0%

Sepura, 2.4%

TD-Tech,

2.4%

Others, 28.3%

Global PMR market share (2016, US$)

Hytera, 22.9%

MSI, 14.8%

Eastcom,

5.3%

Kenwood,

4.5%Haige, 3.3%

Harris, 2.4%

TD-Tech,

5.4%

Others, 47.6%

China PMR market share (2016, US$)



Hytera Communications Corp. (002583.SZ, covered by Tina Hou)

Founded and headquartered in Shenzhen in 1993, Hytera is currently the world’s second

largest PMR provider (6% market share globally in 2016, rising to 8% post the Sepura

acquisition in May 2017), and the largest in China with 23% market share (2016). Its main

business is manufacturing professional mobile radio terminals and providing system

solutions in compliance with the DMR, TETRA, PDT and other analog standards. Hytera is a

major contributor to the PDT standard, China’s homegrown PMR standard designed for

public safety organizations. The company dominates the China public safety market with

80% share, and leads the China public utilities market with 30% share (both as of 2016).

Hytera generated revenue in 2016 of RMB3,436mn (US$517mn), +39% yoy, the highest

growth among global major PMR players (Exhibit 6).

Motorola Solutions Inc. (MSI, covered by Matthew Cabral)

Founded in 1928, MSI is the global leading provider of mission critical communication

solutions for the government, public safety and commercial sectors. The devices and

systems in its product portfolio include portable and vehicle-mounted radios, base stations,

consoles, repeaters, etc. Also, MSI provides implementation and optimization services,

managed & support services, and integrated Digital Enhanced Network (iDEN) services for

these customers. As the largest global player with 53% market share as of 2016, MSI

generated US$6,038mn revenue (+6% yoy) with c.60% from products and the rest from

services. Following the industry technology standards of APCO P25, TETRA, DMR, and

other standards from different countries, MSI has its footprint across 100+ countries. It

continues to lead digital migration and innovation of new technologies globally, while at

the same time expanding its business solutions and channel partner programs both

geographically and across new commercial verticals.

Exhibit 5: PMR products ASP comparison between Hytera and MSI (as of October 2017)

Source: Alibaba.com

Harris Corporation (HRS, covered by Noah Poponak, CFA)

Harris is a leader in tactical communications, geospatial systems and services, air traffic

management, environmental solutions, avionics & electronic warfare, and space &

intelligence. Its communication systems provide a broad portfolio of networked

communication solutions embedded with technologies of land mobile radio standard P25

and LTE. The end users include U.S military, allied international forces, public safety and

commercial sectors. With over a 120-year history, Harris Corporation supports customers

in more than 100 countries, and had US$6,684mn revenue and c.21,000 employees

worldwide as of 2016.

JVC Kenwood (6632.T, Not Covered)

JVC Kenwood Corporation is a high-tech electronics company headquartered in Yokohama,

Japan. With a focus on leading technologies in image, sound and radio, the company

operates three business sectors – automotive, public services and media services, which

contributed c.50%, 24% and 24% respectively of its US$2,632mn total revenue in 2016. In

its radio business under public services it follows technology standards of DMR, P25, dPMR

and NEXEDGE, and covers industries such as public transportation, utilities and retail

business.

Player Hytera MSI Hytera MSI Hytera MSIPrice range (RMB)

Analog MPT1327 350~2200 400~2000 800~2500 1000~2500 ~11000 8000~12000DMR 1500~4000 2500~4000 2500~5000 2500~5000 15000~20000 10000~20000

TETRA 4000~5000 4500~6000 ~5000 5000~8000 >20000 >20000PDT 1500~5500 2500~6000 15000~20000P25 10000~25000 15000~35000 >40000

Digital

Portable radio Mobile radio RepeaterTechnology

standard



Haige Communications (002465.SZ, Not Covered)

Guangzhou Haige Communications Group is a China-based company engaged in

developing, engineering, manufacturing and distributing communication equipment and

navigation equipment. The company has a strong presence in providing professional

devices for China’s armed forces. After its acquisition of Sichuan ACTEC Communications,

one of the core members of China’s PDT Association, Haige Communications has managed

to win projects related to public safety in recent years. In 2016, the company generated

revenue of US$670mn, +8% yoy.

Eastcom (600776.SH, Not Covered)

Founded in 1994 and headquartered in Hangzhou, China, Eastcom is a solution provider of

electronic financials and communication networks. Currently, its products and services

have been applied in more than 20 countries and regions worldwide. Offering

communication devices under PDT and TETRA standards, Eastcom generated revenue of

US$296mn in 2016.

TD Tech Ltd. (Not Listed)

TD Tech was jointly established by Siemens (now acquired by Nokia) and Huawei in 2005

in Beijing, with 51% and 49% shareholdings respectively. The company was specifically

focused on TD-SCDMA technology and products for China Mobile’s commercial 3G

network. In 2011, TD Tech expanded into the PMR market focusing on broadband

technology (vs. Hytera’s traditional focus on narrowband technology), with an estimated

revenue of RMB1.5bn in 2015 (30% domestic, 70% overseas). After the release of its

Broadband Trunking Enhanced Network Solution in 2011, TD Tech provides LTE

communication solutions to both government and enterprise sectors.

Exhibit 6: Hytera sales growth in 2016 was higher than

peers…

Exhibit 7: …and also had the highest gross profit margin

vs. peers



39%

8% 6% 6%2%

-13%

-44%-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Hytera Haige MSI Harris JVC

Kenwood

Sepura Eastcom

Sales growth (YoY, 2016)

49% 48%

40% 39%

31%27%

20%

0%

10%

20%

30%

40%

50%

60%

Hytera MSI Haige Sepura Harris JVC

Kenwood

Eastcom

Gross margin (2016)



Exhibit 8: PMR players – EBIT margin

Exhibit 9: PMR players – net profit margin



Exhibit 10: PMR Valuation Comps

Notes: Pricing as of November 1, 2017, except US stocks which are as of October 31, 2017. Estimates for Not Covered (NC) companies are from Bloomberg. Eastcom is not included in the comp table due to a lack of consensus data. Hytera valuation methodology and key risks: Our 12-month target price of RMB23 is based on 2019E P/E of 24X (30% premium to global PMR peer average). Risks include: PMR demand volatility; FX risks; longer-than-expected receivable turnover.

Source: Datastream, Bloomberg, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research

24%

15%

12%11%

6% 6%

2%

0%

5%

10%

15%

20%

25%

MSI Harris Haige Hytera Sepura Eastcom JVC

Kenwood

EBIT margin (2016)

15%14%

12%

7%

5%

-1%-2%-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Haige MSI Hytera Harris Eastcom JVC

Kenwood

Sepura

Net margin (2016)

Company Ticker RatingMarket 12m

Target Potential

Market cap

Revenue (US$ mn)

Gross margin

Net margin

PEGFCF yield

Div yield

P/B ROE

Price Price +/-Side US$ mn 2016 2016 2016 2018E 2019E 2018E 2018E 2018E 2018E 2018E 2018EHytera (Rmb) 002583.SZ Buy 19.0 23.0 21% 5,018 42.2% 51.3% 55.9% 519 49.0% 11.7% 29.9x 20.2x 0.5x 28.2x 1.4% 0.5% 5.2x 18.6%Motorola Solutions (US$) MSI Buy 90.5 108.0 19% 14,727 1.7% 2.6% 10.2% 6,038 48.4% 14.1% 18.5x 17.2x 1.4x 10.2x 0.0% 2.2% -12.9x

Harris (US$) HRS Buy 139.3 127.0 -9% 16,607 6.6% 10.1% 19.0% 6,684 33.1% 7.3% 20.7x 17.0x 1.3x 12.7x 4.9% 1.6% 4.9x 22.0%

Haige Communications (Rmb) 002465.SZ NC 10.9 3,812 27.5% 37.7% 37.5% 666 42.2% 14.5% 30.4x 23.6x 0.6x 23.9x 3.1% 1.2% 3.0x 9.5%

JVC Kenwood (JPY) 6632 T NC 350.0 427 0.3% 9.5% 14.2% 2,597 29.5% -1.7% 22.9x 18.1x NA 3.5x 9.7% 1.4% 0.8x 2.7%

Average 15.7% 22.2% 27.4% 3,301 40.4% 9.2% 24.5x 19.2x 1.0x 15.7x 3.8% 1.4% 0.2x 13.2%Median 6.6% 10.1% 19.0% 2,597 42.2% 11.7% 22.9x 18.1x 1.0x 12.7x 3.1% 1.4% 3.0x 14.0%STD 18.4% 21.1% 19.1% 2,920 8.8% 6.7% 5.4x 2.8x 0.5x 10.1x 3.7% 0.6% 7.5x 8.8%

Hytera premium to average 21% 27% 41%

Revenue/EBITDA/EPS

2017E-2019E CAGR

EV/ EBITDA

P/E



Goldman Sachs proprietary China PMR industry model

Exhibit 11: Goldman Sachs proprietary China PMR industry model estimates revenue CAGR (2016-2020E) of 14%,

reaching an addressable market size of RMB13.5bn by 2020E

Source: National Bureau of Statistics, Wind, Gao Hua Securities Research

China PMR market size (RMB mn) 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 11-16 CAGR 16-20E CAGRTotal revenue 3,707 4,055 4,498 4,984 5,603 6,419 7,251 8,157 9,405 10,721 12,093 13,538 13% 14%

% yoy 9% 11% 11% 12% 15% 13% 12% 15% 14% 13% 12%

Public safety 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 11-16 CAGR 16-20E CAGR

Revenue 1,695 1,831 2,089 2,273 2,584 2,878 3,261 3,730 4,274 4,889 5,614 6,293 12% 14%% yoy 8% 14% 9% 14% 11% 13% 14% 15% 14% 15% 12%

Sales volume (unit) 299,617 315,958 339,306 363,651 401,085 441,309 492,618 555,537 623,733 689,861 772,559 840,210 10% 11%% yoy 5% 7% 7% 10% 10% 12% 13% 12% 11% 12% 9%

Blended ASP (RMB) 5,656 5,795 6,156 6,251 6,443 6,521 6,620 6,714 6,853 7,087 7,266 7,490 2% 3%% yoy 2% 6% 2% 3% 1% 2% 1% 2% 3% 3% 3%

Public utilities 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 11-16 CAGR 16-20E CAGR

Total revenue 1,485 1,629 1,730 1,903 2,183 2,502 2,782 3,015 3,443 3,912 4,324 4,856 12% 13%% yoy 10% 6% 10% 15% 15% 11% 8% 14% 14% 11% 12%

Sales volume (unit) 286,822 317,703 338,066 370,470 418,390 476,187 530,499 560,087 627,218 689,897 745,415 828,792 11% 10%% yoy 11% 6% 10% 13% 14% 11% 6% 12% 10% 8% 11%

Blended ASP (RMB) 5,176 5,127 5,117 5,136 5,218 5,255 5,244 5,384 5,490 5,671 5,800 5,859 1% 2%% yoy -1% 0% 0% 2% 1% 0% 3% 2% 3% 2% 1%

Revenue from railway 782 857 909 990 1,116 1,342 1,570 1,474 1,701 1,894 2,050 2,264

% yoy 10% 6% 9% 13% 20% 17% -6% 15% 11% 8% 10% Sales volume (unit) 199,707 220,224 234,015 254,778 284,285 333,709 385,040 372,721 419,631 455,830 485,976 533,439

% yoy 10% 6% 9% 12% 17% 15% -3% 13% 9% 7% 10% Blended ASP (RMB) 3,916 3,890 3,886 3,884 3,924 4,021 4,078 3,955 4,054 4,155 4,218 4,244

% yoy -1% 0% 0% 1% 2% 1% -3% 3% 2% 2% 1%

Revenue from metro 11 14 19 25 29 30 36 52 58 70 84 102 % yoy 26% 34% 28% 18% 4% 19% 44% 11% 22% 19% 21%

Sales volume (unit) 2,805 3,548 4,677 6,018 7,218 7,731 9,114 12,615 14,121 16,866 19,827 23,853 % yoy 26% 32% 29% 20% 7% 18% 38% 12% 19% 18% 20%

Blended ASP (RMB) 4,069 4,047 4,112 4,101 4,045 3,931 3,961 4,117 4,083 4,174 4,239 4,264 % yoy -1% 2% 0% -1% -3% 1% 4% -1% 2% 2% 1%

Revenue from airport 20 25 29 28 35 37 41 49 52 58 63 69

% yoy 24% 17% -5% 25% 6% 11% 18% 7% 12% 8% 9% Sales volume (unit) 6,793 7,957 8,978 8,805 10,531 11,160 12,134 13,915 14,729 15,881 16,777 18,228

% yoy 17% 13% -2% 20% 6% 9% 15% 6% 8% 6% 9% Blended ASP (RMB) 2,964 3,136 3,265 3,169 3,324 3,333 3,389 3,499 3,534 3,657 3,739 3,761

% yoy 6% 4% -3% 5% 0% 2% 3% 1% 3% 2% 1%

Revenue from oil pipelines 448 489 512 575 676 717 717 988 1,116 1,303 1,478 1,693 % yoy 9% 5% 12% 17% 6% 0% 38% 13% 17% 13% 15%


Blended ASP (RMB) 5,785 5,683 5,668 5,702 5,807 5,804 5,775 6,145 6,243 6,472 6,634 6,686 % yoy -2% 0% 1% 2% 0% 0% 6% 2% 4% 3% 1%

Revenue from others 223 244 259 285 327 375 417 452 516 587 649 728

Commercials 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 11-16 CAGR 16-20E CAGR

Total revenue 528 595 680 808 836 1,039 1,207 1,412 1,688 1,920 2,156 2,389 16% 14%% yoy 13% 14% 19% 4% 24% 16% 17% 20% 14% 12% 11%

Sales volume (unit) 684,471 779,081 867,509 1,013,211 1,022,890 1,246,142 1,410,506 1,603,698 1,845,179 2,055,209 2,237,671 2,422,271 13% 11%% yoy 14% 11% 17% 1% 22% 13% 14% 15% 11% 9% 8%

Blended ASP (RMB) 771 764 784 798 818 834 856 881 915 934 963 986 2% 3%% yoy -1% 3% 2% 3% 2% 3% 3% 4% 2% 3% 2%

Revenue from residential property 150 164 195 251 249 302 361 426 513 588 666 745 % yoy 9% 19% 29% -1% 21% 20% 18% 20% 15% 13% 12%

Sales volume (unit) 229,293 252,399 292,043 370,120 358,487 424,683 496,745 569,326 660,136 741,443 814,230 888,846 % yoy 10% 16% 27% -3% 18% 17% 15% 16% 12% 10% 9%

Blended ASP (RMB) 656 651 667 677 695 710 728 748 777 794 818 838 % yoy -1% 2% 2% 3% 2% 2% 3% 4% 2% 3% 2%

Revenue from commercial property 182 215 238 274 295 356 421 493 590 672 756 839

% yoy 18% 11% 15% 8% 21% 18% 17% 20% 14% 12% 11% Sales volume (unit) 278,348 331,835 358,878 405,282 426,234 503,399 579,796 660,187 760,630 848,411 925,012 1,002,597

% yoy 19% 8% 13% 5% 18% 15% 14% 15% 12% 9% 8% Blended ASP (RMB) 653 648 664 677 693 708 726 747 776 792 817 837

% yoy -1% 3% 2% 2% 2% 3% 3% 4% 2% 3% 2%

Revenue from industrial property 116 127 145 162 166 226 244 281 331 371 410 447 % yoy 9% 14% 12% 3% 36% 8% 15% 18% 12% 11% 9%


Blended ASP (RMB) 657 651 668 681 698 709 730 751 781 797 822 842 % yoy -1% 3% 2% 3% 2% 3% 3% 4% 2% 3% 2%

Revenue from others 79 89 102 121 125 156 181 212 253 288 323 358

Total revenue excl. others 3,405 3,722 4,137 4,577 5,151 5,888 6,653 7,493 8,636 9,846 11,121 12,452 Sales volume (# of units) 1,270,910 1,412,742 1,544,881 1,747,332 1,842,364 2,163,638 2,433,623 2,719,322 3,096,130 3,434,967 3,755,644 4,091,273

% yoy 11% 9% 13% 5% 17% 12% 12% 14% 11% 9% 9% Blended ASP (RMB per unit) 2,679 2,634 2,678 2,620 2,796 2,721 2,734 2,756 2,789 2,866 2,961 3,043

% yoy -2% 2% -2% 7% -3% 0% 1% 1% 3% 3% 3%

% of total market 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020EPublic safety % 46% 45% 46% 46% 46% 45% 45% 46% 45% 46% 46% 46%Public utilities % 40% 40% 38% 38% 39% 39% 38% 37% 37% 36% 36% 36%Commercials % 14% 15% 15% 16% 15% 16% 17% 17% 18% 18% 18% 18%



China PMR market to reach RMB13.5bn by 2020E

We conduct a bottom-up analysis on China’s PMR market size, categorizing it into three

sectors namely public safety, public utilities and commercials, which accounted for 46%,

37% and 17% of the total PMR market in 2016. We expect the China’s PMR market to grow

at a 14% CAGR from 2016-2020E to reach an addressable market size of RMB13.5bn by

2020E. We expect CAGR for each of the three sub-sectors to be in teen digits (13%-14%)

from 2016 to 2020E, driven by increasing penetration, upgrading demand from analog to

digital, and replacement demand on a growing installment base. We forecast 3% CAGR

(2016-2020E) for the industry blended ASP, driven by the shifting product mix from analog

(low ASP) to digital (high ASP). We elaborate on each sub-sector below.

China PMR industry model sub-sector analysis

1) Public safety

We forecast the PMR market size of the public safety sector in China to grow at a 14%

CAGR over 2016-2020E. The main driver is improving PMR equipment penetration rate on

public safety staff, public safety vehicles, and public safety department. We expect the PMR

equipment rate in the public safety sector to increase from 61% in 2016 to 91% by 2020E,

and blended ASP CAGR of 3% from 2016 to 2020E.

We assume that every public safety staff has one portable radio terminal, every five staff

share a vehicle (thus five staff have one vehicle-mounted mobile radio terminal), and every

public safety department has its own system and the system on average has four channels.

For product mix trend (analog to digital), we note that China public safety departments

started to use digital products (terminals and systems) from 2009 and the process of digital

migration has accelerated since 2011 due to the launch of PDT products. We expect the

migration rate to further increase from 2017, driven by demand for higher bandwidth, and

achievement of an overall digital penetration ratio of 43% by 2020E (vs. 20% in 2016).

Exhibit 12: China’s total government budget on security grew at 13% CAGR in the past 10 years

Source: China Bureau of Statistics

2) Public utilities

We expect the PMR market size of the public utilities sector to grow at a 13% CAGR over

2016-2020E, driven by increasing infrastructure spending by the government and an

improving penetration rate due to safety requirements.

We break down the public utilities sector to railway, metro, airport and oil pipelines and

then form our assumptions based on China’s macro policies. According to China’s

transportation 5-year plan, the country plans to operate a total railway length of 150,000km

and total oil & gas pipelines length of 165,000km by 2020E, implying 4-year CAGR of 5%

and 9% respectively. We expect total metro length to grow at a CAGR of 15% from 2016 to

2020E, based on the historical average in the past three years. According to the 13th Five

Year Plan, China plans to operate a total of 260 airports by 2020, which implies a 4-year

CAGR of 5%.

Public safety spending (RMB bn) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CAGRCentral government budget 59 63 73 82 102 114 129 139 154 167 184 12%

Local government budget 270 346 414 432 522 587 640 678 736 13%

Total government budget 330 410 487 514 624 702 769 817 890 13%

% yoyCentral government budget 7% 16% 11% 25% 12% 13% 8% 11% 8% 10%

Local government budget 28% 19% 4% 21% 13% 9% 6% 9%

Total government budget 24% 19% 6% 21% 12% 10% 6% 9%



We assume every 20km/20km/50km of railway/metro/oil pipeline needs one PMR base

station, and one base station is deployed per airport to ensure the effectiveness of

communication. We expect the base station equipment rate to improve from 83% in 2016

to 96% by 2020E and achieve digital penetration of c.30% by 2020E (versus c.20% in 2016).

Exhibit 13: Main goals of China’s transportation five-year plan

Source: www.gov.cn

3) Commercials

We forecast the PMR market size of the commercial sector in China to grow at a 14% CAGR

over 2016-2020E, driven by increasing property area built and improving equipment

penetration due to safety requirements.

We classify the commercial PMR market into residential property, commercial property,

and industrial property. We expect China residential property, commercial property and

industrial property area to grow at CAGRs of 6%/5%/3% from 2016-2020E based on the past

five year historical CAGR. We assume 30 PMR terminals are needed per residential district

(average size about 0.2 sq km), 50 PMR terminals are needed per commercial district

(average size of 0.06 sq km), and 5 PMR terminals are needed per industrial district

(average size of 0.03 sq km).

Based on the above assumptions, for commercials we expect the PMR equipment rate to

improve from 72% in 2016 to 96% by 2020E and achievement of digital penetration of

c.20% by 2020E (vs. 15% in 2016)



Global government support underpins PMR industry growth

In the face of increasing terrorist activities, geopolitical tensions, and ethnic and internal

political conflicts, we have seen long-term government policies in China, the US and

Europe address security concerns and pledge to deploy more capital to protection.

China’s 13th Five-Year Plan demonstrated detailed tasks to enhance the infrastructure,

support, management and response for emergency and security.

Europe Horizon 2020, led by the European Commission, planned to spend €1.7bn for

secure societies, accounting for 2.2% of the total Europe Horizon 2020 budget.

US Homeland Security plans to invest US$40.6bn for its homeland security in 2017,

among which US$54.6mn is earmarked to support mission-critical interoperability

equipment acquisitions.

We believe that under these guidelines, public security budgets will continue to rise,

incentivizing private sector spending in tandem and leading to higher PMR terminal /

equipment penetration rates in public safety, utilities, as well as commercial sectors.

13th Five-Year Plan (China State Council)

On July 19, 2017, the State Council issued “Notice of the General Office of the State

Council on Printing and Distributing the ‘13th Five-Year Plan’ for the Construction of

National Emergency Response System”, which outlined the key targets and main tasks

from 2016 to 2020.

Key targets

Emergency management infrastructure capacity continues to improve.

Significant enhancement of core emergency rescue capability.

Comprehensive emergency support capabilities to strengthen.

Significant improvement in social collaborative response ability.

Emergency management system to further improve.

Main tasks

Strengthen the emergency management fundamental capability: Improve the

emergency risk management system, strengthen the urban and rural communities and

infrastructure disaster resilience, improve the monitoring and early warning service

system, and strengthen the urban and grass-roots emergency management capacity-

building, improve the emergency management capacity and level.

Strengthen the core emergency rescue capability: Strengthen the public security,

military and armed police emergency response capacity-building, support the

construction of professional emergency teams in key industries, form the core of

China's emergency response capacity, undertake the mission of emergency rescue.

Strengthen the comprehensive emergency protection capability: Make full use of social

resources, accelerate the application of new technologies, promote emergency

coordination and capacity building, and further improve the emergency platform,

emergency communications, emergency supplies and emergency transport security

system.

Strengthen social collaborative emergency response capability: Strengthen public self-

defense autonomy, group defense, self-help and rescue ability, support and guide

social forces to regulate and conduct orderly emergency rescue operations, improve

the social conflict emergency response system.



Further improve the emergency management system: Continue to promote the

construction of emergency management system, improve the emergency

management standards.

We expect China’s public security spending to increase as the 13th Five-Year Plan

prescribed which provides a tailwind to the PMR industry and encourages higher PMR

terminal/equipment penetration.

Europe Horizon 2020 (European Commission)

Europe Horizon 2020 is the eighth “Framework Programme for Research and Technological

Development” (FP8) led by the European Commission, with nearly €80bn of funding

available over seven years (2014 to 2020), which is an over 50% increase from FP7 that

covered 2007-2013.

Europe Horizon 2020 is composed of three main research areas, or "pillars":

The first pillar is called "Excellent Science", which focuses on basic science, with a

budget of €24bn;

The second pillar is "Industrial Leadership" and has a budget of €14bn;

The third pillar is named "Societal challenges" and funds potential solutions to social

and economic problems, with a budget of close to €30bn.

Within “societal challenges”, €1.7b is designated for “secure societies – protecting freedom

and security of Europe and its citizens”, accounting for 2.2% of the total Europe Horizon

2020 budget.

Homeland Security (DHS) Budget Plan (United States)

The DHS Budget Plan builds on the paramount priorities to strengthen the foundation of

security and resilience in the US by providing the funding to sustain the country’s most

critical programs and initiatives in five primary mission areas. In fiscal year 2017, the US

DHS claimed a net discretionary budget of US$40.6bn, which reflected the continued

commitment to strengthen critical programs and capabilities in each of the mission areas.

Five Primary Missions

Preventing terrorism and enhancing security.

Securing and managing borders.

Enforcing and administering immigration laws.

Safeguarding and securing cyberspace.

Strengthening national preparedness and resilience.

Key budget deployment on PMR

Invest US$54.6mn to support mission-critical interoperability equipment acquisitions

across the U.S. Border Patrol, Office of Field Operations, and Air and Marine

Operations. Tactical communications capabilities, including hand-held and vehicle

radios, are seen as essential to coordinating mission activities and protecting the

safety of CBP law enforcement agents and officers. These agents and officers operate

in remote areas where their radio is often their only communications channel to

coordinate activities or summon assistance.



PMR vs. MNO: Complementary rather than cannibalistic

PMR is designated for critical scenario-based communications

As mentioned earlier, PMR is widely applied in government and public safety, utilities,

public transportation and commercial sectors (hotels, property management group, etc.).

The question is why do these end users choose PMR networks over public mobile networks

(and operators, MNO) such as 2G/3G/4G? In general, unique requirements for the

functionality and reliability of the communication services make PMR the preferred

network in mission critical scenarios.

Exhibit 14: PMR end users

Source: Digital Mobile Radio Association

We believe public mobile network technologies such as 4G and 5G are likely to be more

complementary than cannibalistic to PMR, as they serve different customer segments (i.e.,

MNO is B2C whereas PMR is B2B) with different demands and thus they offer different

functionalities. As shown in Exhibit 15, PMR customers require more reliable, confidential,

long-range communication over bandwidth, etc.

Exhibit 15: MNO vs. PMR


Public Mobile Network Operators (MNO) Private Mobile Radio (PMR) universal nature and profit-driven born with mission

- Public Mobile Network Operators run their business under competitive conditions with licenses

granted by national regulatory bodies (e.g. MIIT in China).

- PMR deals with severe situations within a given coverage area with defined quality properties.

- The licenses require MNOs to roll out their wireless networks to cover a certain amount of national

population.

- Their coverage is not defined in terms of population but in terms of size and shape of a required

service area and expected worst case situations.

- They are generally profit driven – i.e., they are trying to maximize average revenue per user (ARPU)

and cut down cost of operations, thus financially optimizing the businesses.

- PMR networks offer a functionality that fits the needs of their users and is of outstanding resilience.

- As such, PMR networks are under full control of their owners and are not operated under any

competitive condition.

1. Group workPMR users generally work in teams, which mostly results in communication as a “talk group” sharing

radio channels to update all group members simultaneously, providing a common communication

platform for the entire team.

2. Emergency response

PMR users ask for immediate access under urgent or significant circumstances. Immediate access to

the communication network is initiated by using the Push-to-Talk (PTT) button addressing a particular

individual or talk group with a call set-up time of less than half a second. Every communication initiated

by PTT event is accompanied by an automatic identification disclosing the identity of the speaker.

3. Location trackingAutomatic location discovery, navigation assistance, and tracking of mobile users and response

vehicles are essential for speedy dispatch and supervision by control centers.

4. SecuritySecurity preservation mechanisms for authentication, integrity and confidentiality, such as end-to-end

and over the air encryption are also demanded by PMR users.

MNO vs. PMR

PMR end users share similar demands



Demand is different

PMR networks and equipment are built and purchased by customers in the public safety,

public utility, and commercial sectors for critical group communications. These customers

own their networks and have full control over the network operations, vs. in the public

mobile network (MNO) where users have to share the network with billions of other users.

PMR network users have strong demand for network stability and reliability, for mission-

critical situations such as fire emergencies, railway/subway/oil pipeline operations, or

catching a criminal suspect, to name a few. As such, the network needs to be on at all

times and there is no tolerance for communication interruption.

PMR device users usually operate under extreme conditions/circumstances (in a fire

situation, an oil field, etc.) so the handheld and vehicle-mounted devices need to have extra

safety standards. MNO networks such as 4G/5G have different coverage and capacity in

different areas, they usually have better coverage and higher capacity in city centers, but

may have intermittent coverage and low capacity in rural areas and highways/high-speed

rails. As a result, in an emergency situation, it is widely believed that only PMR networks

can provide the level of reliability demanded by the public safety and public utility

customers.

Function is different

PMR is traditionally a narrow-band technology (nowadays converging with broadband LTE),

whereas 3G/4G/5G are all broadband technologies. The major difference between

narrowband and broadband lies in the balance of range vs. bandwidth. Narrowband offers

long range, low power consumption, and low interference, whereas broadband has

advantages in high data rate, high bandwidth, but consumes more power and spectrum as

well.

We believe PMR offers the following unique functionalities that make it irreplaceable by

any broadband technologies (i.e. 4G/5G):

Confidentiality: A PMR network is operated in a specific spectrum separate from

MNO, usually at a lower spectrum band. Only the matched equipment or terminals

could access the spectrum, and communicate in this closed network. It could largely

filter out the noise from other public communications, which is extremely important

for security purposes.

Reliability: A PMR network will always be designed for meeting the requirements of

the expected worst case scenario. Each industry would have different requirements for

PMR reliability, and as such, PMR networks will be custom built to meet the need with

defined purpose and capacity.

Ownership: Another thing that differentiates PMR from MNO is that PMR is operated

fully under control of its owners (vs. MNO which are operated by telcos). This

guarantees PMR could be used any time to only serve the need of the owner who

designed the network with specific purpose.



Exhibit 16: Functions & Features of PMR vs. MNO


Cost is different

Cost efficiency is also an advantage PMR has over MNO networks. As PMR networks are

built at lower spectrum (400MHz, 500MHz) than MNO networks (from 800MHz to 2.5GHz),

the base station coverage radius is longer, and covering the same area requires fewer base

stations for PMR. Over the past few years, we have seen a trend of convergence between

narrowband and broadband, and more and more PMR devices incorporating LTE functions,

for increasing demand of data transmission. As a result, we see broadband technologies

(4G/5G) as complementary to PMR rather than cannibalistic. For 5G, as the network will be

built at even higher spectrum band (3.5GHz) and won’t see its commercial launch globally

until 2020, we believe it is uneconomical at this point for PMR to adopt 5G technology.

Function & Feature PMR Network MNO NetworkGroup call Yes No

Individual call Yes Yes

Dispatch mode Yes No

Push-to-Talk (PTT) Yes Limited

Emergency alert Yes Limited

Fast call set-up Yes No

Late entry Yes No

Direct or Talk Around (DMO) Yes No

Full duplex communication Yes Yes

Talker identification Yes Yes

Audio quality Yes Yes

Status code messages Yes No

Short data messages Yes Yes

Data applications Yes Limited

DGNA Yes No

Functional dial numbers (object-oriented) Yes No

Talkgroup subscription/attachment Yes No

High availability Yes No

Integrity Yes Limited

Confidentiality (encryption) Yes Limited



Appendix 1: PMR standard comparison

Analog vs. Digital

Exhibit 17: Digital signal has wider range and higher quality vs. analog

Source: TIA (Telecommunication Industry Association)

Analog and digital are types of electric signals, which are widely used to transmit

information and data. The key difference between analog and digital is that analog takes an

audio or video signal and translates into electronic pulse of varying amplitude, while digital

breaks the signal into binary series of “1”s and “0”s where each bit is representative of two

distinct amplitudes.

In general, digital radio exhibits certain advantages over analog radio. The digital process

could filter noise and rebuild signals from damaged transmissions, so users can get better

communication quality. We also see the following as advantages:

Security: Digital has security advantage over analog. With digital, signals can be

encrypted without degrading the quality of the audio or the range at which the radio

works.

Data: Digital radio technologies make use of IP-based networks. This means that the

data capabilities are increasingly flexible.

Spectral efficiency: Digital could offer better spectral efficiency (spectral efficiency

refers to the information rate that can be transmitted over a given bandwidth) as it

makes better use of channels.

Audio quality: Digital could filter out noises and interference more effectively than

analog, and as a result, delivers better and clearer audio in a great distance.

Compatibility: Analog technologies cannot be applied in software but digital

technologies support advanced applications such as GPS location and high speed

messages on top of the hardware, achieving better compatibility.

Interoperability: In most of the cases, digital technologies offer smooth pathways for

nearby systems to interoperate, and can support analog signals.

Minimum acceptable audio quality

Audio quality

Excellent

Poor

Signal strengthStrong Weak

Digital

Analog

Audio quality

Signal coverage

Zone I: Analog better than digital. Information is translated into electric pulses of varying amplitude so the reduction effect is better.

Zone II: Digital better than analog. The digital process could filter noise and rebuild signal from damaged transmission, so that users can get better communication quality and wider coverage.



Conventional vs. Trunked

Exhibit 18: Trunked system supports larger user coverage vs. conventional system

Source: TIA

In conventional radio systems, the system has dedicated channels to specific groups /

users, and the user manually selects the channels they want. However, it offers lower

interoperability for communication. As an example, for public security users the channel I

may be dedicated to field officers while channel II may be to others. In this case, as no

control channels are needed, users are free to use any of the channels available to them.

This means that a user would need to finish their call on channel II before another user

could place a call on channel II. Therefore, the amount of users who can successfully use

this network is directly related to the amount of channels available.

Trunked systems take advantage of the fact that not everyone will need a channel at the

same time, so the number of users that can be supported grows exponentially with the

number of channels. In trunked system when user wants to place the call, they will be

routed to the first free channel. This can save users a lot of time and frustration as they

don't need to worry about turning a knob to find an open channel, or having to wait to

communicate over a specific channel. Rather, they can simply use the push-to-talk button

and be quickly connected over the first available channel.



Exhibit 19: PMR technology standard comparison

* = see more detail in following section

Source: TIA, Gao Hua Securities Research

Region of issuance: Different countries/regions may set their own standards for PMR

products as most of these products are applied in government and public fields where

protection of confidential information is of great significance. PMR technologies started in

Europe, so several standards (including MPT 1327) come from Europe.

Channel access: The main technical standards here cover Frequency Division Multiple

Access (FDMA) and Time Division Multiple Access (TDMA).

FDMA: FDMA (Frequency division multiple access) refers to the process of separating a

channel or bandwidth into multiple individual bands, each for use by a single user. Each

individual band or channel is widely enough to allow the signal spectra of the

transmissions to be propagated. It is commonly adopted in satellite communication.

TDMA: TDMA (Time division multiple access) is a digital technique that divides a single

channel or band into time slots. Each time slot is used to transmit one byte or another

digital segment of each signal in sequential serial data format. Therefore, TDMA allows

multiple users to share the same frequency channel by dividing the signal into various time

slots. This technique works well with slow voice data signals, but it is also useful for

compressed video and other high-speed data.

Standards TETRA DMR P25 PDT

Region of issuance* EU EU US China

DMR I and II: 2005

DMR III: 2012

Conventional system No Yes Yes No

Trunked system Yes Yes Yes Yes

Channel access* TDMA TDMA TDMA & FDMA TDMA

Slots* 4 slots 2 slots 2 slots 2 slots

Bandwidth* 25 khz 12.5 khz 12.5 khz 12.5 khz

Rate* 28.8 kbps 9.6 kbpsUp 9.6 kbps, Down

12.5 kbps9.6 kbps

Area Coverage Small Large Large Large

User density High Low, medium Low, medium Low, medium

Overall product price High Low, medium Very high Medium

Maintenance cost High Low, medium High Low, medium

Ease of migration from

old technologyHard Easy Easy Easy

Time of issuance 1995 1995 2008



Other basic access or multiplexing methods are called Code Division Multiple Access

(CDMA), Orthogonal Frequency Division Multiple Access (OFDMA), and Spatial Division

Multiple Access (SDMA). They are widely applied in public mobile networks.

Exhibit 20: FDMA vs. TMDA

Source: TIA

Slots: As is indicated in TDMA, each time slot can transmit one byte or another digital

segment of each signal in sequential serial data format. The standards mainly apply two

slots or four slots. Usually, it is the bit-rate of available or consumed information capacity

expressed typically in metric multiples of bits per second.

Bandwidth: Bandwidth refers to information capacity carried with a channel, and is

defined as the amount of data that can be transmitted in a fixed amount of time.

Rate: Rate (speed) here is measured by kbps. Both upstream rate and downstream rates

are considered.



Exhibit 21: PMR standard adoption by regions

Source: TETRA and Critical Communication Association

China developed PDT standard since 2011

Africa adopted both TETRA and DMR

Australia adopted P25 since 2016 and DMR also taking more market share 85% of South America market

still uses analog standard.

Digital standard TETRA and

DMR would take more share.

North America adopted P25 standard since 1995

Russia and the Middle-East have

used a mix of

DMR/P25/TETRA

since 2005

Europe has adopted TETRA

since 1997



Appendix 2: Glossary of terms

PMR/LMR: PMR refers to Professional Mobile Radio or LMR (Land Mobile Radio) in the

US. PMR is a type of wireless communication designated for mission-critical use cases.

Networks typically consist of devices (the simplest form is a walkie-talkie), base station,

and control center equipment.

PDT (Professional Digital Trunking): Established in 2008, PDT is a Chinese digital

professional mobile radio standard, co-developed by Hytera and China’s security

department. PDT uses TDMA (Time Division Multiple Access) and operates in the 12.5

kHz channel. PDT is designed fully in accordance with China’s safety standards.

TETRA (Terrestrial Trunked Radio): Established in 1995, TETRA is a European

standard for digital professional mobile radio. TETRA uses TDMA and operates in 25

kHz channels that can support high user density but comparably smaller coverage vs.

other standards. TETRA is designed for high volumes of radio traffic over smaller

coverage areas within dense urban environments.

DMR (Digital Mobile Radio): Established in 2005, DMR is a European digital

professional mobile radio standard. DMR uses TDMA and operates in the 12.5 kHz

channel. DMR is designed for a high volume of radio traffic over wide coverage areas

and is comparably lower-cost vs. TETRA.

P25 (Project 25): Established in 1995, P25 or APCO P25 is an American digital

professional mobile radio standard. P25 could use either TDMA or FDMA (frequency

division multiple access) and operates in the 12.5 khz channel. P25 is used for public

safety purposes, and offers a high level of encryption.

MPT-1327: Established in 1988, MPT-1327 is a narrowband professional mobile radio

standard. An advantage over other digital standards is the lower cost of equipment

and the ease of installation. MPT systems are still being built in many areas of the

world due to this cost effectiveness.

iDEN (Integrated Digital Enhanced Network): Established in 1991 by Motorola, iDEN

is a proprietary digital radio system. iDEN provides a full suite of PMR features and

operates in 25khz channel. However, since the system is proprietary, even from an

industry leader like Motorola, potential for frequency allocation and interoperability is

limited. Therefore, without significant market penetration, cost is likely to remain

higher vs. other standards.

LTE (Long-Term Evolution): A high-speed wireless broadband technology developed

by the Third Generation Partnership Project (3GPP). The LTE solution could address the

need for PMR services that require high data throughput such as mail, secured web

services, video and image delivery.

dPMR: A European digital professional mobile radio standard. dPMR uses FDMA and

operates in two 6.25 khz channels. It offers the lowest cost digital voice/data solutions

and a similar set of repeater and trunking options to DMR.

NEXEDGE: A digital radio brand developed by Kenwood, which has the ability to

communicate with both analog and digital handsets, providing a cost-effective solution

to customers migrating from legacy analog systems, and wider coverage.

TD-SCDMA: The format of choice for the national standard of 3G mobile

telecommunication in China.

MNO (Mobile Network Operator): A provider of wireless voice and data

communication services for its subscribed mobile users.



Disclosure Appendix

Reg AC

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company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to

the specific recommendations or views expressed in this report.

Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.

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Disclosures

Coverage group(s) of stocks by primary analyst(s)

Tina Hou: A-share Telecoms and Technology, Greater China Telecoms and Technology.

A-share Telecoms and Technology: Accelink Technologies, China United Network Comm, Dahua Technology, Fiberhome Telecom Tech, GoerTek Inc.,

Hikvision Digital Technology, Shenzhen Luxshare Precision Ind, Shenzhen O-Film Tech Co., Wangsu Science & Technology Co., ZTE Corp. (A).

Greater China Telecoms and Technology: China Communication Services, China Mobile (HK), China Mobile (HK) (ADR), China Telecom, China

Telecom (ADR), China Unicom, China Unicom (ADS), Hua Hong Semiconductor Ltd., Mediatek, Parade Technologies Ltd., Silergy Corp., SMIC, SMIC

(ADR), Sunny Optical Technology Group, TSMC, TSMC (ADR), United Microelectronics Corp., United Microelectronics Corp. (ADR), ZTE Corp. (H).

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