"Wireless Communication Equipment, Supply Shortage Expected"...Securities Firm's Recommended Picks[Weekend Money]

Hana Securities: “Recommend buying RFHIC, KMW, and others”

With the United States imposing regulations on Chinese wireless communication equipment and component imports, domestic outsourcing wireless communication equipment companies are projected to benefit due to an expected supply shortage next year, according to securities firm analysts.

On September 20, Hongshik Kim, a researcher at Hana Securities, stated in a report, "If the supply shortage of wireless communication equipment materializes in 2027, higher-than-expected multiples are likely to be achieved." He added, "We recommend actively buying RFHIC, KMW, Solid, HFR, LIG Acube, and OE Solution."

The United States has already announced plans for large-scale investments in wireless communications. Kim noted, "Through the enactment of the 'One Big Beautiful Bill Act (OBBBA)' in July, the U.S. announced plans for a massive 800MHz spectrum auction from 2027 to 2029. In addition, following the Amazon Web Services (AWS) three-band spectrum auction in June, the U.S. is also planning an upper C-band frequency auction in April next year." He further explained, "The main objective is to foster Physical AI, which will serve as the foundation for U.S. telecom companies to expand their 5G and 6G services."

Nvidia is also attracting attention as it plans to expand its business with AI base stations (AI-RAN). Kim stated, "Ultimately, amid the justification for new spectrum investments, we expect the widespread deployment of AI base stations capable of providing both telecommunications and AI functionality as the industry evolves towards standalone 5G (SA) and 6G." He added, "Investments in 5G SA and 6G are expected to accelerate to support the rollout of AI base stations, and the killer services for 5G SA are projected to be Physical AI and quantum cryptography communication."

However, Hana Securities forecasts that the supply shortage issue will intensify next year. This is because mergers and acquisitions (M&A) are driving consolidation among top companies, causing not only a sharp decrease in the number of global suppliers (SIs) but also a drastic reduction in the number of outsourcing firms.

This appears to be largely due to losing price competitiveness against China. In the early 2000s, wireless equipment and components were led by Western companies such as Andrew, Allen, Powerwave, and Filtronic. However, with the rapid growth of Chinese SIs such as Huawei and ZTE, the wireless equipment and component market has been restructured around Chinese vendors including Wuhan Pangu, Comba, and Datang Technology.

Against this backdrop, the U.S. restrictions on Chinese equipment and components are likely to further strain supply. Kim commented, "Recently, there has been turmoil over the supply of optical modules due to U.S. sanctions on Chinese products, prompting calls for regulatory relief on Chinese products."

There are also predictions that this situation will be positive for domestic outsourcing companies. As physical AI competition continues, the likelihood of a frequency auction being held domestically next year is increasing. Kim stated, "Looking at previous cases of supply shortages during LTE and 5G rollouts, the market capitalization of the wireless communication equipment sector in the past three years was determined based on the highest achievable annual operating profit and growth potential." He further analyzed, "Assuming annual maximum operating profits between 2027 and 2029 are 300 billion won for KMW and 150 billion won for RFHIC, both companies have sufficient potential to challenge for a market capitalization of 10 trillion won within the next two years."

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