Since it reached the peak of the cycle in 2017, the optical cable industry has experienced a downward cycle of nearly three years, mainly due to a sudden decline in demand in 2018 and concentrated production capacity in 2018, which has entered a downward cycle under the mismatch of supply and demand in the industry. We believe that new domestic infrastructure investment and overseas network construction are gradually driving the demand side to pick up, the supply side appears the trend of concentration to the leader, the industry may enter a new round of upward cycle.

First, the demand side: new domestic infrastructure and overseas network construction jointly pull the demand side to pick up.

Although the volume and price of China Mobile Limited's collection will rise in 2021, there is still a lack of consensus on the long-term demand direction.We believe that, with the overall national network construction and the development of the digital economy, the wide coverage of 5G network, the popularization of gigabit broadband, optical network coverage in rural and remote areas, the calculation of east and west, and the construction of data centers will drive the domestic optical fiber and cable market demand to continue to increase, so since the second half of 2021, the bidding of operators has shown a trend of both quantity and price rising, and the procurement scale and price have increased significantly compared with the previous year.

In overseas markets, in the context of the COVID-19 epidemic, governments of various countries have regained their attention to communication network infrastructure, large-scale capital expenditure planning is frequent, and overseas optical fiber deployment is expected to continue to accelerate. It is expected that the demand for optical fiber and optical cable in major regions of the world will resume the growth trend.

Second, the supply side: the trend of head concentration appears, and the competitive environment is continuously optimized.

With the clearance of backward production capacity of optical fiber and cable, the relationship between supply and demand in the domestic optical fiber and cable market tends to be balanced, the revenue and net profit of various manufacturers gradually increase, and ushered in a substantial increase in 2022Q1, various financial indicators improved accordingly.

At the same time, in the case of no capacity expansion for many years, the light rod market shows a tight balance. In addition, under the influence of the turbulent international political situation and the COVID-19 epidemic, freight and raw material prices fluctuate greatly, and the prices of raw materials such as silicon tetrachloride and helium have risen sharply, which has a great impact on the production capacity of small and medium-sized manufacturers, and the trend of concentration of the industry head may accelerate the deduction, benefiting leading manufacturers with independent R & D and production capabilities and strong process independence, and small and medium-sized enterprises may continue to withdraw from the market.

III. Outlook: if global demand rises and superimposed supply locks up, the industry will enter a new economic cycle.

On the demand side, according to China Mobile Limited's tender announcement for ordinary optical cable collection from 2021 to 2022, the estimated scale of ordinary optical cable collected is 4.4705 million skin long kilometers, equivalent to 143.2 million core kilometers, an increase of 20% over 2020 and 36% over 2019. Domestic demand tends to recover; on the supply side, the leading concentration effect is becoming more and more significant. In this context, China's optical fiber and cable market supply and demand is expected to maintain a tight balance, and pull the price recovery, the industry may enter a new cycle of volume and price rise, it is suggested that investors pay attention to China Mobile Limited's new round of cable collection in 2022. Hengtong Optoelectronics is recommended, and Changfei Optical Fiber and Zhongtian Science and Technology are recommended.

Risk Tips:The risk that the demand in the domestic market is lower than expected, the risk of slowing down the process of network construction caused by foreign economic pressure, the risk of freight rising too fast, and the risk of rising costs too fast.