20250424-招银国际-中兴通讯-00763.HK-Strong_growth_in_second-curve_businesses_5页_988kb

ZTE (763 HK) Summary

Core Content

ZTE has reported its 1Q25 financial results, showing strong revenue growth driven by its second-curve businesses, particularly in the enterprise/gov't segment. The company is shifting its strategic focus from "full connectivity" to "connectivity + computing power," which is expected to drive future growth. Despite this, the gross profit margin (GPM) and net profit margin (NPM) have declined due to changes in product mix and reduced carrier sales.

Main Points

• Revenue Growth:

  • 1Q25 revenue increased by 8% YoY and 5% QoQ to RMB33.0bn.
  • The enterprise/gov't segment revenue doubled YoY, contributing over 20% of total sales.
  • FY25 revenue is projected to grow by 9.9% YoY to RMB133.26bn, with continued growth in FY26 and FY27.

• Gross Profit Margin (GPM):

  • GPM dropped to 34.3% in 1Q25, down from 42.0% in 1Q24 and 30.6% in 4Q24.
  • The decline is attributed to the increased contribution from non-carrier business segments.
  • FY25 GPM is forecasted to be 36.7%, with a further decline expected in subsequent years.

• Net Profit Margin (NPM):

  • Net profit declined by 11% YoY to RMB2.5bn in 1Q25.
  • NPM is expected to be 6.7% in FY25, down 0.2ppt from previous estimates.
  • Despite margin pressure, the company's operational efficiency is expected to moderate the impact on NPM.

• Target Price and Recommendation:

  • The target price (TP) has been revised to HK$26.50, which is 18.3% above the current price of HK$22.40.
  • The TP is based on a 13.2x 2025E P/E ratio, 1 SD above the 2-year historical average.
  • The recommendation remains "BUY," reflecting the company's potential to benefit from the domestic AI market.

Key Information

Revenue and Profit Trends

Profitability Metrics

Market and Financial Performance

• Market Cap: HK$16,923.2m
• Average 3 Months Turnover: HK$1,048.0m
• 52-Week High/Low: HK$34.65 / HK$14.80
• Total Issued Shares: 755.5m

Shareholding Structure

Share Performance

Key Risks

• China-US trade tensions
• Softening of domestic telco capex and delays in overseas 5G deployment
• Weaker-than-expected consumer or enterprise spending

Strategic Shift and Growth Drivers

• Second-Curve Businesses:
  • Contributed over 35% of 1Q25 revenue.
  • Expected to drive future growth with a projected 54% YoY increase in enterprise/gov't segment sales in FY25.
• AI Market:
  • ZTE is positioned to benefit from the domestic AI market.
  • Strategic pivot toward AI-driven opportunities is expected to enhance long-term growth prospects.

Financial Highlights

• Operating Profit: Expected to grow by 8.7% in FY25 to RMB11.23bn.
• EBIT: Projected to increase to RMB9.92bn in FY25.
• Net Profit: Forecasted to be RMB8.98bn in FY25, RMB10.30bn in FY26, and RMB11.87bn in FY27.
• Cash Flow:
  • Net cash from operations is expected to rise to RMB15.27bn in FY25.
  • Net cash from financing is projected to decrease in FY25, but increase in FY26 and FY27.

Valuation

• P/E Ratio: 13.2x for 2025E, which is 1 SD above the 2-year historical average.
• P/E Band and Chart:
  • Figures 1 and 2 show the valuation trends and comparisons between CMBIGM estimates and Bloomberg consensus.

Analyst Certification and Disclosures

• The analyst certifies that the views expressed accurately reflect their personal views and confirms no conflicts of interest.
• The report is not an offer to buy or sell securities and is for informational purposes only.
• CMBIGM is not a registered broker-dealer in the U.S. and is not subject to U.S. research regulations.
• The report is intended for distribution solely to major U.S. institutional investors.