20220617-招银国际-中兴通讯-00763.HK-Corp_Day_Takeaways__Stable_growth_for_2022E_3页_838kb

ZTE (763 HK) Company Update Summary

Core Content Overview

This report provides an update on ZTE's performance and outlook for 2022, highlighting its strategic focus on growth drivers and financial metrics. The analysis is based on the company's financial data, market trends, and analyst recommendations.

Key Financial Highlights

Revenue and Earnings

Profitability Metrics

• Gross margin: 31.6% (FY20A) to 35.0% (FY24E)
• Operating margin: 5.4% (FY20A) to 7.8% (FY24E)
• Net profit margin: 4.2% (FY20A) to 6.3% (FY24E)
• ROE: 9.8% (FY20A) to 13.5% (FY24E)
• ROA: 2.8% (FY20A) to 4.7% (FY24E)

Earnings Per Share (EPS)

• Diluted EPS: 0.92 (FY20A) to 2.17 (FY24E)
• Consensus EPS: 1.72 (FY22E) to 2.11 (FY24E)

Price to Earnings (PE)

• PE: 15.6 (FY20A) to 6.6 (FY24E)

Target Price and Performance

• Target Price (TP): HK$29.65 (unchanged)
• Current Price: HK$17.6
• Up/Downside: +68.5% from current price to TP
• 12-month price performance: Positive trend observed

Growth Drivers and Market Position

Domestic Carrier Business

• ZTE is expected to maintain a positive outlook in 2022.
• Wireless market share is projected to reach 35% in 2022 (vs. 31% in 2020 and 33% in 2021).
• Despite a 3% decline in 5G capex, the share gain will offset this.
• Optical transmission network sales are expected to increase, with ZTE's market share rising to 30% from 24–25%.

Consumer and Non-Carrier Businesses

• Consumer business will maintain double-digit growth in 2022.
• CPE business (60% of consumer segment revenue) grew 80% YoY in 2021, driven by favorable policies and market conditions.
• Mobile device sales (40% of consumer segment revenue) showed positive growth in Q1 2022, despite the broader smartphone market weakness.
• Gov. and enterprise businesses are also expected to benefit from the industrial digitalization trend, with cloud-related market opportunities emerging as a new growth driver.

Key Ratios and Financial Position

Revenue Mix

• Carrier business: 74,018 (FY20A) to 90,343 (FY24E)
• Consumer business: 16,160 (FY20A) to 47,986 (FY24E)
• Gov. and enterprise: 11,272 (FY20A) to 25,022 (FY24E)

Liquidity and Leverage

• Current ratio: 1.4 (FY20A) to 2.0 (FY24E)
• Net gearing: Net cash throughout the forecast period

Shareholding and Stock Data

• Market Cap: HK$132,309 million
• Average 3-month turnover: HK$111 million
• 52-week high/low: HK$31.75 / HK$12.7
• Total issued shares: 755.5 million

Share Performance

Analyst Recommendations

• Rating: BUY (unchanged)
• Target Price (TP): HK$29.65
• Potential Risks:
  • China-US trade tensions
  • Additional component restrictions or technology bans
  • 5G deployment delays

Summary of Key Points

• ZTE is expected to achieve RMB130bn in revenue for 2022E, driven by wireless and optical transmission market share gains and industrial digitalization.
• The company is a leader in the telecom server market, with a 20% market share in 2021 and an expected increase to 25% in 2022.
• Consumer and non-carrier businesses are expected to maintain double-digit growth in 2022.
• CPE business saw strong growth in 2021 (80% YoY) and is expected to remain stable in 2022.
• Mobile device sales showed positive growth in Q1 2022.
• Gov. and enterprise sectors are seen as growth opportunities due to the rise in industrial digitalization.
• The current ratio is expected to improve, indicating better liquidity.
• Net profit margin is projected to increase steadily, showing improved profitability.
• The BUY rating is maintained with an unchanged TP of HK$29.65.
• The 12-month price performance has shown a positive trend, though with potential risks from geopolitical factors and market conditions.

Conclusion

ZTE is positioned for stable growth in 2022, supported by its strong presence in wireless and optical transmission markets, as well as the emerging cloud and industrial digitalization sectors. The company's financial health remains robust, with improving liquidity and profitability metrics. Despite the risks, the BUY rating reflects the analyst's confidence in its long-term growth potential.