5G Recommended by Global IB... Is It the Right Time to Invest?

[Asia Economy Reporter Koh Hyung-kwang] As the KOSPI index is expected to surpass the 3000 mark this year, 5th generation mobile communication (5G) related stocks have been identified as one of the promising investment sectors. Experts anticipate that 5G-related stocks will achieve significant performance improvements this year as domestic telecom companies resume investments and global 5G investments accelerate. Global investment bank (IB) JP Morgan also selected 5G, along with semiconductors and electric vehicles, as preferred sectors likely to form a bull market in the Korean stock market this year.

Leading domestic 5G equipment stocks include KMw, Innowireless, Sollid, Dasan Networks, and RFHIC. These stocks generally showed steady growth over the past year, but due to the prolonged COVID-19 pandemic and delays in 5G investments by overseas telecom companies, their stock performance in the second half of the year was lackluster. However, this year, delayed investments are expected to be made on a large scale, contributing to performance improvements and driving stock prices upward. Experts predict that 5G equipment stocks will continue their rally from February to March this year and may reach new highs. From early this year, a significant increase in supply volume is expected, allowing domestic network equipment companies to benefit greatly.

The driving force behind this benefit is the start of exports to the United States. Experts believe that Verizon, AT&T, and T-Mobile, the top three U.S. telecom companies, are highly likely to actively engage in 5G investments. With investments in the 3.5GHz band having started at the end of last year, focused investments in the 3.5?3.9GHz band are scheduled to begin in the U.S. from February this year.

Kim Hong-sik, a researcher at Hana Financial Investment, stated, "The allocation bandwidth is expected to be about three times larger than during the frequency auction last August, indicating stronger competition," and mentioned Samsung Electronics' success in securing a 5G equipment order worth 8 trillion won from Verizon in September. He added, "After the band frequency auction, it is highly likely that domestic 5G equipment order announcements will be made from four U.S. telecom companies including AT&T and T-Mobile."

The domestic market outlook is also optimistic. The government’s linkage of 3G and 4G frequency reallocation prices to the number of 5G base stations installed, and the application of an additional 3% tax credit for 5G investments, support this view. Experts expect that large-scale order announcements for U.S. telecom companies will likely be made between January and February, and based on monthly equipment sales volume, stock prices could surpass previous highs by March. Cho Cheol-hee, a researcher at Korea Investment & Securities, said, "The stock prices of network equipment companies have moved faster than expected over the past three years, and there is a high chance that stock prices will react in advance before U.S. exports fully take off early this year. Based on monthly equipment sales volume, the rally of network equipment stocks is expected to continue early this year, with stock prices breaking all-time highs in March."

Lee Kyu-ha, a researcher at NH Investment & Securities, explained, "Recently, as part of economic stimulus measures to overcome the COVID-19 crisis, not only Korea but also the U.S., Europe, and China are actively investing in 5G infrastructure. In particular, as the U.S. strengthens sanctions against China, domestic equipment stocks may gain indirect benefits."