Fear of COVID-19 Is 'Groundless'... Telecom Equipment Stocks Surge

KMw·Oisolution Rise Amid China Stock Market Plunge

[Asia Economy Reporter Minwoo Lee] Domestic telecommunications equipment stocks, which had fallen due to concerns over the novel coronavirus infection (Wuhan pneumonia), are making a comeback. Although concerns were raised about potential production disruptions in China and decreased investment demand due to the economic slowdown caused by the epidemic, analyses are increasingly suggesting that these worries are unfounded.

According to the Korea Exchange on the 4th, at 10 a.m. that day, the stock price of KMV, a leading domestic '5G flagship' telecommunications equipment company, rose about 1% from the previous day to 52,200 KRW. Even on the previous day, which was the peak of the 'C (novel coronavirus) fear' that caused the Chinese stock market to plunge more than 7% after reopening following the Lunar New Year holiday and affected global markets, KMV's stock price increased by 4.34% compared to the previous trading day. During the same period, other major telecommunications equipment stocks such as Oisolution, RFHIC, and Dasan Networks also rose by around 2-3%. This recent stock price trend of telecommunications equipment stocks contrasts with other sectors that declined due to concerns over the economic slowdown in China caused by the novel coronavirus.

Domestic telecommunications equipment companies' stock prices have risen significantly since the end of last year, as earnings surprises are expected with the convergence of 5G investment demand from Japan, the United States, and China this year. KMV, ranked sixth in market capitalization on the KOSDAQ market, rose more than 38% from 44,350 KRW on November 22 last year to 61,300 KRW on January 21 this year. Oisolution also surged 53% from 34,376 KRW on November 25 last year to 52,600 KRW on January 3 this year, marking a three-month high. As 5G commercialization progresses worldwide, telecommunications equipment stocks holding related equipment and technologies have greatly benefited.

However, as the novel coronavirus risk spread in China, considered the largest 5G market, stock prices quickly fell. RFHIC, which supplies telecommunications equipment to Huawei, a Chinese telecom company, dropped about 34% in one month. KMV, which supplies to the Chinese company ZTE, also fell about 20% in ten days.

There is an analysis that concerns about the novel coronavirus are excessive. These concerns stemmed from the possibility of production disruptions in China and decreased 5G investment demand due to the economic slowdown caused by the novel coronavirus outbreak, but the actual impact is minimal. Kim Hongsik, a researcher at Hana Financial Investment, explained, "Most domestic network equipment companies produce their products in Korea or Vietnam," adding, "Even Samsung, a major client, has relocated its factories from China to Vietnam, so the actual risk of damage is low."

Chinese companies Huawei and ZTE operate production plants in Shenzhen, while Nokia and Ericsson operate factories in Shanghai and Beijing, respectively. All these locations are distant from Wuhan City in Hubei Province, the outbreak site of the novel coronavirus, so any damage is expected to be minimal. Unless the novel coronavirus spreads throughout China causing widespread factory shutdowns, the possibility of domestic telecommunications equipment companies suffering damage is slim.

From the demand side, the likelihood of significant disruptions is low. It is expected that Chinese telecom companies will not reduce their 5G investments due to the novel coronavirus. It is also positive that Chinese telecom companies have already significantly reduced orders to domestic companies that rely heavily on U.S. components and processes. Due to U.S. trade sanctions on Huawei, Chinese companies are greatly lowering their dependence on the U.S. Kim said, "Until last year, sales to China by domestic telecommunications equipment companies were minimal," and predicted, "Even if the proportion of China among suppliers decreases this year, the absolute sales growth could still be substantial."

In the securities industry, analyses suggest that telecommunications equipment companies are already achieving strong performance due to the full-scale 5G investments in countries such as Japan and the United States, in addition to China. Park Jongsun, head of the Mid-Small Cap team at Eugene Investment & Securities, stated, "Governments and telecom companies in the U.S., China, Japan, and others will actively promote commercialization starting this year, focusing on network construction and device distribution," and diagnosed, "Positive developments are expected for 5G-related telecommunications equipment and component companies."

This content was produced with the assistance of AI translation services.