20220324-招银国际-中兴通讯-00763.HK-Overhang_removed__Focus_on_core_business_development_4页_915kb

ZTE (763 HK) Company Update Summary

Core Content

This report provides an update on ZTE (763 HK) from CMB International Global Markets, focusing on recent developments, financial performance, and investment outlook. The key highlights include the resolution of legal probation, financial results for FY21, and a reiteration of the "BUY" rating with an unchanged target price.

Main Points

• Legal Probation Ends: ZTE received a ruling from the U.S. District Court that ends its probation and the Monitor term on 22 March 2022. This is a positive development that removes regulatory uncertainty and helps stabilize the share price, which had been under pressure due to market sentiment and geopolitical tensions.
• Financial Performance (FY21):
  • Revenue: RMB114.5bn, up 12.9% YoY, in line with previous forecasts.
  • Net profit: RMB6.8bn, up 59.9% YoY.
  • Operating cash flow has grown for three consecutive years.
• Business Development: ZTE is expected to focus on core business development and operational improvements in 2022. The company is anticipated to gain market share in telecom deployment with new 5G BTS planned.
• Investment Recommendation: The analysts maintain a "BUY" rating with an unchanged target price of HK$29.65, representing a +54.7% upside from the current price of HK$19.16.
• Risks: Potential risks include Sino-U.S. trade tensions, component restrictions, and delays in 5G deployment.

Key Financial Data

Earnings Summary

Financial Summary

• Net Cash from Operating: RMB10,233 (FY20A), RMB15,724 (FY21A), RMB13,728 (FY22E), RMB12,252 (FY23E), RMB17,148 (FY24E)
• Net Cash from Investing: RMB-7,082 (FY20A), RMB-10,592 (FY21A), RMB-2,817 (FY22E), RMB-3,438 (FY23E), RMB-3,850 (FY24E)
• Net Cash from Financing: RMB-290 (FY20A), RMB2,779 (FY21A), RMB161 (FY22E), RMB3,750 (FY23E), RMB4,431 (FY24E)
• Net Change in Cash: RMB2,861 (FY20A), RMB7,910 (FY21A), RMB11,073 (FY22E), RMB12,564 (FY23E), RMB17,729 (FY24E)

Balance Sheet Highlights

• Total Assets: RMB150,635 (FY20A), RMB168,763 (FY21A), RMB181,605 (FY22E), RMB202,681 (FY23E), RMB222,653 (FY24E)
• Total Liabilities: RMB104,512 (FY20A), RMB115,476 (FY21A), RMB121,139 (FY22E), RMB133,721 (FY23E), RMB143,727 (FY24E)
• Total Equity: RMB46,123 (FY20A), RMB53,288 (FY21A), RMB60,466 (FY22E), RMB68,960 (FY23E), RMB78,926 (FY24E)
• Current Ratio: 1.4 (FY20A), 1.6 (FY21A), 1.8 (FY22E), 1.9 (FY23E), 2.0 (FY24E)

Key Ratios

• Gross Margin: 31.6% (FY20A), 35.2% (FY21A), 35.1% (FY22E), 35.0% (FY23E), 35.0% (FY24E)
• Operating Margin: 5.4% (FY20A), 7.6% (FY21A), 7.5% (FY22E), 7.8% (FY23E), 8.1% (FY24E)
• Net Profit Margin: 4.2% (FY20A), 5.9% (FY21A), 6.1% (FY22E), 6.3% (FY23E), 6.5% (FY24E)
• ROE: 9.8% (FY20A), 13.2% (FY21A), 13.5% (FY22E), 13.7% (FY23E), 13.9% (FY24E)
• BPS (Book Value per Share): RMB9.35 (FY20A), RMB10.88 (FY21A), RMB12.35 (FY22E), RMB14.08 (FY23E), RMB16.12 (FY24E)

Share Performance

• 1-month return: -22.6%
• 3-month return: -27.1%
• 6-month return: -40.3%
• 52-week high/low: HK$31.75 / HK$12.7
• Market Cap (HK$ mn): 141,363
• Avg. 3mths turnover (HK$ mn): 102

Shareholding Structure

• BlackRock: 9.15%
• Capital Group: 5.08%
• Schroders: 4.93%

CMBIGM Ratings

• BUY: Potential return of over 15% over next 12 months.
• HOLD: Potential return of +15% to -10% over next 12 months.
• SELL: Potential loss of over 10% over next 12 months.

Analysts

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

Disclaimer

• The report is not investment advice and is based on public information.
• CMBIGM does not guarantee accuracy or completeness.
• Investors are advised to consult with a professional financial advisor.
• The report is intended for specific recipients and may not be distributed to others without consent.

Legal and Regulatory Information

• Auditor: Ernst & Young
• CMB International Global Markets Limited is a subsidiary of China Merchants Bank.
• The report is subject to various regulatory disclosures depending on the region of the recipient.