20220426-招银国际-中兴通讯-00763.HK-Strong_1Q22_results__continuing_improvement_in_operation_and_business_development_4页_904kb

ZTE (763 HK) Company Update Summary

Core Content

ZTE (763 HK) released its 1Q22 results, which showed a strong performance with revenue and net profit to shareholders growing by 6.4% and 1.6% YoY, respectively, reaching RMB27.9bn and RMB2.2bn. These results were largely in line with expectations, and the firm maintains a BUY rating with an unchanged target price of HK$29.65.

Looking ahead, ZTE is expected to continue its business development and operational improvement. The company is projected to achieve 12.9% YoY revenue growth for FY22E and 15.7% YoY net profit growth. The firm is also anticipated to gain market share in the telecommunications sector as China's telecom operators increase their capex budget to RMB352bn for FY22E, a 4% YoY increase. Although 5G-related capex budgets have slightly decreased by 5%, the overall pace of 5G BTS deployment remains steady.

ZTE's share in telco capex is currently ~22.3%, and is expected to rise slightly to 22.8% in 2022. The firm is seen as a key beneficiary as the telco sector shifts investment from 5G infrastructure to industrial digitalization.

Main Points

• 1Q22 Performance:

  • Revenue: RMB27.9bn (+6.4% YoY)
  • Net Profit to Shareholders: RMB2.2bn (+1.6% YoY)
  • GPM increased to 37.8% from 35.2% in FY21, driven by the telecom segment.
  • NP before extraordinary items grew 117% YoY, indicating improved business operations.

• Future Projections:

  • FY22E revenue growth: 12.9% YoY
  • FY22E net profit growth: 15.7% YoY
  • Carrier revenue growth is expected to exceed telco capex growth (6.1% vs. 3.9%).

• Market Outlook:

  • ZTE is expected to benefit from the shift in telco investment from 5G to industrial digitalization.
  • Current valuation is seen as attractive due to the broad market pullback and macroeconomic concerns.

Key Financial Metrics

Earnings Summary (RMB mn)

Earnings Growth (%)

Key Ratios

Valuation Metrics

Risks and Considerations

• Potential Risks:

  • Sino-U.S. trade tensions
  • Additional component restrictions or technology bans
  • 5G deployment delays

• Macro Factors:

  • China lockdowns impacting economic performance
  • Russian-Ukraine conflict increasing material costs
  • Supply constraints and worldwide inflation

Analysts and Contact

• Analysts:

  • Lily Yang, Ph.D
  • Alex Ng
  • Lana Lin

• Contact Information:

  • Lily Yang: (852) 3916 3716 / lilyyang@cmbi.com.hk
  • Alex Ng: (852) 3900 0881 / alexng@cmbi.com.hk
  • Lana Lin: (852) 3761 8912 / lanalin@cmbi.com.hk

Disclosures

• Auditor: Ernst & Young

• Ratings:

  • BUY: Potential return of over 15% over next 12 months
  • OUTPERFORM: Industry expected to outperform the broad market benchmark
  • MARKET-PERFORM: Industry expected to perform in-line with the broad market benchmark

• Important Notes:

  • The report is for informational purposes only and not investment advice.
  • CMBIGM does not provide individually tailored investment advice.
  • Past performance is not indicative of future results.
  • The information is based on publicly available data and may change without notice.
  • The firm may have conflicts of interest due to market-making or investment banking relationships.

Regulatory Information

• Hong Kong:

  • CMBIGM is a subsidiary of China Merchants Bank.
  • The report is not an offer to buy or sell securities.

• United Kingdom:

  • Only for persons within Article 19(5) or Article 49(2) of the Financial Promotion Order 2005.

• United States:

  • Intended for "major US institutional investors" only.
  • Not distributed to other persons.

• Singapore:

  • Distributed by CMBI (Singapore) Pte. Limited (CMBISG), an exempt financial adviser.
  • Legal responsibility is limited to the extent required by law.