20260309-招银国际-中兴通讯-00763.HK-Accelerating_compute_power_but_decelerating_margins_6页_754kb

ZTE (763 HK) Summary

Core Content

ZTE released its FY25 financial results, showing a revenue increase of 10.4% YoY to RMB134bn, slightly below both the company's and Bloomberg's estimates. However, net profit declined significantly by 33.3% YoY to RMB5.6bn, which is also below the estimates. The gross margin (GPM) dropped to 30.3%, a decline of 7.7ppts from the previous year, primarily due to a higher proportion of sales in the Enterprise & Government (E&G) segment.

In 4Q25, ZTE's revenue increased by 6.8% YoY and 15.2% QoQ to RMB33.3bn, while net profit fell by 42.9% YoY but rose by 11.9% QoY to RMB296mn. The company maintains a BUY rating with an adjusted target price (TP) of HK$38.6, down from HK$42, based on a 25.0x 2026E P/E multiple. Peers are trading at a lower multiple of ~24.0x 2026E P/E.

Main Points

• Revenue Growth: ZTE reported strong top-line growth, with a 10.4% YoY increase in FY25 and a forecast of 11.3% growth in FY26E.
• Margin Pressure: The gross margin declined to 30.3% in FY25, and is expected to further drop to ~29% in FY26E due to the increased focus on E&G sales.
• Segment Analysis:
  • Carrier: Revenue declined by 10.6% YoY in FY25, though overseas carrier revenue remained resilient with double-digit growth. The segment margin dropped to 48.1% from 50.9% in FY24.
  • E&G: Emerged as the second growth engine, with revenue more than doubling to RMB37bn in FY25. AI compute revenue surged by 150% YoY, driven by partnerships with major domestic hyperscalers. However, the segment margin fell to 11.0% from 15.3% in FY24, and is expected to grow by ~30% in FY26E.
  • Consumer: Revenue grew by 4.4% YoY to RMB34bn in FY25, with the segment remaining broadly stable. The consumer segment is expected to grow modestly by mid-single-digit in FY26E, while the family network segment saw margin pressure.

Key Financial Figures

Outlook and Strategy

• The company remains in a transitional phase as its revenue mix evolves.
• The focus on E&G and AI server sales is expected to drive future revenue growth, though margin pressure is likely to persist.
• Despite margin challenges, the company is maintaining its BUY rating, reflecting continued confidence in its growth potential.

Analyst Notes

• Target Price: HK$38.6 (from HK$42).
• Price Performance: 12-month absolute return of -21.1%, relative to the market of -22.1%.
• Earnings Revisions: New estimates show a decline in revenue and profit compared to old estimates, with the most significant drop in FY26E net profit.

Peer Comparison

Analyst Certification

The research analyst certifies that the views expressed in the report accurately reflect their personal views and confirms no conflicts of interest in relation to the covered securities.

CMBIG Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10% over the next 12 months.
• SELL: Potential loss of over 10% over the next 12 months.
• NOT RATED: Not rated by CMBIGM.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Important Disclosures

• The report is not investment advice and does not guarantee accuracy or completeness.
• CMBIGM is not a registered broker-dealer in the U.S. and the report is only for major U.S. institutional investors.
• The report is distributed in Singapore by CMBISG, an Exempt Financial Adviser, and is subject to Singapore's Financial Advisers Act.