Edison Lee

What I am Known For

• Communication Services
  – In-depth understanding of telecom technology, having analyzed the sector from the 2G era to the current 5G era.
  – Unique ability to understand the intersection of geopolitics, China’s government policies, technological impact and competitive dynamics in China.
  – Long-term sector knowledge and detailed modelling that incorporates key rev, cost and capex drivers.
• Software & Services
  – In-depth understanding of the entire digitization industry chain starting from telecom services, network technology, hardware/semi supply chain, data center development, industrial Internet development and software adoption.
  – Ability to understand the intersection of global geopolitics, tech standard development, China’s government policies, technological impact and competitive dynamics in China.
  – Focus on understanding the business models, entry barriers, pricing power and competitive dynamics, which drive our view on both near-term and long-term industry trends.
  – Detailed, long-term financial models that incorporate all of the above.
• Technology Hardware & Equipment, Semiconductors & Semiconductor Equipment
  – In-depth understanding of semi/IC design technology, telecom technology, China semi and smartphone supply chain, data center demand/supply, and strategies of telcos’ 5G buildout.
  – Engineering perspective/knowledge of latest technology treads and future developments.
  – Strong connections in Asian tech supply chain and ability to provide timely datapoints.
  – The closest following of the US-China tech war and tension on the sell side, and sound conclusion of geopolitical development such as the PCAOB audit deal and US semi restrictions against China.
  – Focus on understanding the business models, entry barriers, pricing power and competitive dynamics, which drive our view on both near-term and long-term industry trends.
  – Detailed, long-term financial models that incorporate all of the above.

How I am Different

Communication Services

5G became source of the US-China tech war. We correctly predicted in our 2017 report “The Geopolitics of 5G and IoT” that there are significant geopolitical considerations in 5G’s development, and it would become a national race for China and the US. The subsequent 5G-driven tech war has massively escalated

China’s 5G capex: In 2017 we put forward our non-consensus view that 5G would be a totally different technology than 4G and Chinese telcos’ capex would need to be bigger than expected. In 2019, when we believed market expectations on China’s 5G capex were too high, we started highlighting that Chinese telcos’ 5G capex would be lower than expected. The Chinese telcos gave lower-than-expected 2020/21 capex guidance.

The SOE ICT ecosystem and SOE reform to drive multi-year growth at telcos: We have been highlighting telcos’ growth in 5G industrial Internet is under-estimated given gov push on digital transformation and creating the SOE ICT ecosystem (part of Xinchuang), and their big cost advantage over independent CSPs. The SOE reform this year takes a different shape to focus on valuation and ROE. Telcos’ re-rating is not yet done, in our view.

Recommend CCS and AsiaInfo as telco ecosystem play: For those investors who cannot buy telcos, we recommend CCS and AsiaInfo as proxies. Both stocks have performed well and their fundamentals also improved over the past six months.

Software & Services

The “LDD” thematic (Localization, Digitization & De-carbonization) – Glodon, Baosight and Zhejiang Supcon our top picks. We identified industrial software as a multi-year high-growth, but under-researched, sub-sector that is poised to be significantly re-rated. In the past 6 months, these stocks have risen and outperformed significantly, aided by accelerated localization, gov’s data initiatives and market excitement about ChatGPT. We stick to these names to play China’s “LDD” efforts.

China’s cybersecurity play – QiAnXin and Venustech. We initiated on both at Buy and rated VT our top pick, believing they would both benefit from industry’s structural change leveraging their strong state background and comprehensive product lines. But VT would further benefit from CM’s investment and its 5G II growth. Since November 2022, VT has risen 14% (was up 36% at one time) and outperformed its peers.

China’s ERP less attractive than industrial and cybersecurity play. While a play on “LDD,” we highlighted still high R&D and S&M costs would keep them viewed as expensive stocks and thus are less preferred on our buy list. Recently potential competition from Huawei’s self-developed ERP system put more pressure on their stock prices, but in our view the worry is unwarranted.

Initiated on Thundersoft at Uperf (the only sell on the market). Our 127-page report provides in-depth analysis of its 3 business segments, concluding that the smartphone business has significant ASP and margin downside, while the auto business also has LT downside, which the stock has not priced in. Since September 2022, the stock has missed GM and rev and fallen 36%.

Technology Hardware & Equipment, Semiconductors & Semiconductor Equipment

5G became source of the US-China tech war. Our 2017 report “The Geopolitics of 5G and IoT” highlighted the significant geopolitical considerations in 5G development, which arguably led to the US-China tech war.

Early bearish view on global/China smartphone growth. We downgraded our outlook of global smartphone in 2Q21, and since then have conducted extensive analysis to show why smartphone growth/5G migration would be significantly below market expectations. We also did not turn more positive in 4Q22/1Q23 while the market/industry expected recovery in 2023. We reiterate our bearish calls on Sunny Optical and Will Semi.

Extensive analysis of how the US CHIPs Ban would impact China. We leverage our tech knowledge, supply chain contacts, and experience in geopolitical analysis to project the impact. Our conclusion is playing out even though there has been occasional noise about how China could get around.

Intensive coverage of China’s data center industry. We highlighted that the power supply would be constrained and gov policies would encourage consolidation and favor established players such as GDS and VNET. Provided extensive demand and supply analysis.