Comba Telecom Announces 2012 Interim Results

(22 August 2012 – Hong Kong) – Comba Telecom Systems Holdings Limited (“Comba Telecom” or “the Group,” Hong Kong stock code: 2342), a global leading wireless enhancement solutions provider, today announced its unaudited interim results for the six months ended 30 June 2012 (“the period under review”).
During the period under review, the Group’s revenue rose slightly by 1.8% to HK$2.59 billion. The slight increase was mainly attributable to the postponement of certain investment activities and inspection processes by the PRC mobile operators. Thus revenue from some of the Group’s projects was not recognized in the review period and resulted in a decline in the Group’s revenue from certain major products as compared to the same period last year. During the period, the gross profit was HK$720 million while the gross profit margin decreased to 27.8%, as a result of changes in product demand, increase in cost of sales caused by inflation, unrealized sales scalability of new products and new businesses, and the increasingly fierce competition. A net loss of HK$160 million was recorded due to the decrease in the Group’s overall gross profit margin and the increase in operating expenses. The Board does not recommend any interim dividend (1H 2011: HK5 cents per share).

Mr. Tony TL Fok, Chairman of Comba Telecom, said, “In the first half of 2012, the global economic environment remained challenging and the PRC also experienced a slowdown in economic growth, which inevitably affected the Group’s domestic business. However, the Group recorded moderate growth in its international business due to continuous expansion in overseas markets. In the face of these challenges, the Group will accelerate the development of new products and actively enhance their sales scalability, and undertake downsizing measures to control costs and increase profitability. We will also adopt more stringent cost and budget controls, aiming to turn around in the second half of the year.”

During the period, there was an increasing demand for 3G network deployment and optimization as a consequence of the rising number of 3G subscribers and data usage. Sales from 3G mobile network projects reported a 48.7% increase year-on-year to HK$990 million, representing 38.2% of the Group’s total revenue. Meanwhile, revenue from China Mobile Group declined by 6.9% to HK$1.35 billion due to the postponement of certain investment activities and inspection procedures by the PRC mobile operators. Revenue from China Unicom Group and China

In addition to consolidating the existing businesses, the Group continued to actively develop innovative products in order to drive customer demand. During the period, revenue from wireless access and transmission business increased significantly by 72.0% to HK$360 million and accounted for 13.7% of the Group’s revenue. The growth was mainly attributable to the increasing expenditure by the PRC mobile operators for WLAN build-out, resulting in a good sales performance of WLAN. Revenue from the wireless enhancement business decreased by 20.5% to HK$700 million and accounted for 27.0% of the Group’s revenue. The decline in revenue was mainly due to the postponement of certain investment activities and inspection process conducted by the PRC mobile operators, hence some of the Group’s projects revenue were not recognized in the Current Period. Moreover, there was a keen competition of the traditional enhancement products which affected the overall performance of the wireless enhancement business. Revenue from the antennas and subsystems business increased slightly by 6.6% to HK$870 million and accounted for 33.6% of the Group’s revenue. The increase was mainly due to the rising demand for base station antennas by the mobile operators for replacement and extension of network coverage. Revenue from services, including installation, network optimization, network upgrade, and after-sales maintenance services, increased slightly by 3.8% to HK$670 million and accounted for 25.7% of the Group’s revenue. Services revenue is expected to have a better performance in the second half of the year as more project tenders are expected to be announced due to the seasonality factors.

On the international front, benefiting from the network deployment, extensions and upgrades along with the continuous demand for total solutions for network upgrades in some emerging markets, revenue from international customers and core equipment manufacturers increased by 23.8% to HK$430 million. The growth reflected the effectiveness of the Group’s strategy of expansion in the overseas markets. Meanwhile, driven by the growing popularity of smartphones and mobile internet in the world, mobile subscribers has delivered a strong demand for broadband wireless telecommunications and accelerating the  development of the next generation of mobile communications technology, LTE. The Group has supplied products for trial in a number of cities in the PRC, and has also deployed LTE-compatible products to certain markets in Asia Pacific, Americas and Middle East. The demand from these markets is expected to escalate and the Group is optimistic about the international business in the second half of the year.

Comba Telecom believes that innovation is the key to success and has consistently invested in R&D to create innovative products over the years. During the period, R&D costs increased by 73.0% to HK$200 million, representing 7.7% (1H 2011: 4.6%) of the Group’s revenue. The increase in R&D costs was mainly attributable to continuous investment in the expansion of its product portfolio for Indoor Broadband Wireless Access Systems (“IB-WAS”) and 2G, 3G, WLAN and LTE mobile networks in both the domestic and overseas markets. As at 30 June 2012, the Group has applied for approximately 1,100 patents.

Mr. Fok added, “We believe that the synergistic development of multiple networks (2G/3G/4G/WLAN) is the future trend, and the Group has already diversified its portfolio. Particularly, the Group has made considerable investment in developing the IB-WAS system which is a typical small cell structure, extending the development of 2G, 3G, WLAN and LTE technologies. The remarkable values of the IB-WAS system include increasing network capacity, extending network coverage, enhancing data traffic of hotspots and lowering the cost for rapid network build-outs. As such, the IB-WAS system is gaining more importance in the industry and is being deployed for commercial network build-outs. The Group strongly believes those products (including Nanocell) will become a mainstream product in wireless communications as well as a key growth driver of the Group in the future. As one of the first group of entrants in the PRC in the small cell segment, we are confident that Comba Telecom can establish a leading position in this market. In addition, the Group is devoting more efforts to explore the exciting market potential in both DMS and satellite emergency communication systems in order to capture greater market share.”

Mr. Fok concluded, “Although the global economic environment will remain gloomy in the near future, the PRC’s economy in the long run is expected to stay firm. Mobile telecommunication devices have become a necessity, and as a result, high-quality networks are an inevitable trend. In the meantime, as the mobile network is a core telecommunications infrastructure in the PRC, the Central Government has always attached great importance in promoting the advance of telecommunications technologies. Therefore, the Group remains optimistic about the prospects for the development of the industry. In the second half of the year, the Group will pay closer attention to cost and budget controls, and will continue to invest in R&D in order to sharpen our competitive edge. With the solid foundation established over the years, our extensive experience in the market, awareness of market trends and leading technologies, Comba Telecom is well-equipped to capture the huge opportunities arising when the industry returns to vibrant growth.”