20240311-招银国际-中兴通讯-00763.HK-Improved_margins_in_2023__expect_steady_growth_in_2024_6页_627kb

ZTE (763 HK) Financial Performance and Outlook

2023 Performance Summary:

• Revenue grew 1.1% year-on-year to HKD 124 billion, in line with consensus and exceeding original forecasts by 3%. Net profit increased 15.4% YoY to HKD 9.3 billion, slightly below consensus but matching forecasts.
• Gross margin improved to 41.5%, a 434bps increase from FY22, driven by operational optimization and cost reduction efforts, including self-developed components.
• Fourth-quarter revenue jumped 14.7% YoY and 21.5% QoQ, while net profit rose 17.8% YoY but fell 37.3% QoQ due to lower gross profit margin from unfavorable revenue mix, partially offset by in-house component cost savings, and higher SG&A expenses.

Segment Analysis:

• Carrier segment revenue increased 3.4% YoY, supported by domestic market share gains in RAN and non-RAN businesses, and overseas progress.
• Consumer segment sales declined 1.3% YoY, affected by overseas inventory digestion and competition, but partially boosted by domestic family network growth.
• Enterprise & Gov’t segment revenue dropped 7.1% YoY, attributed to slowed investment.

2024 Outlook:

• ZTE poised to leverage emerging telecom trends, including 5.5G/6G and AI compute power, for steady growth.
• Maintain Buy recommendation with adjusted target price at HKD 24.8, based on 10x 2024E P/E, reflecting close alignment with 3-year average and industry headwinds.
• Key catalysts may include telecom operators’ capital expenditure outlook and advancements in AI development.

Financial Highlights:

• Revenue and profit forecasts show moderate growth in 2024E and 2025E, with gross margin stabilizing around 41.5-42%.
• Current price at HKD 17.92, target price implies upside of ~38.4%.
• Strong operational metrics, including improved NPM and ROE, indicate profitability gains.