【行业研究报告】中兴通讯-Improved margins in 2023; expect steady growth in 2024

PLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGEPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGEMOREREPORTSFROMBLOOMBERG:RESPCMBRORhttp://www.cmbi.com.hk1MN11Mar2024CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateZTE(763HK)Improvedmarginsin2023;expectsteadygrowthin2024ZTEreleaseditsFY23results.Revenuegrewby1.1%YoYtoRMB124bn,inlinewithconsensusand3%higherthanourforecast.Netprofitincreasedby15.4%YoYtoRMB9.3bn,5%lowerthanconsensusandinlinewithourforecasts.Grossmarginfor2023was41.5%,representinga434bpsincreasefromFY22.NPMshowedasimilartrend,reaching7.5%inFY23from4.2%/5.9%/6.6%inFY20-22.ZTE’sprofitabilityimprovedsteadilyasaresultofthecompany’scontinuedeffortsinoperationoptimizationandcostreduction(i.e.,self-developedcomponents).For4Q23,thecompany’srevenuegrewby14.7%YoYand21.5%QoQ;whileitsnetprofitgrewby17.8%YoYandfell37.3%QoQ,respectively.Thesequentialdeclinewasmainlydueto1)alowerGPM(36.0%inQ4vs.44.6%inQ3)onalessfavorablerevenuemix,whichwaspartiallyoffsetbycostoptimizationwithin-housedesignedcomponentsinConsumer/GovernmentandEnterprisesegments,2)a42.5%increaseinSG&AinQ4onhigheremployeebenefitsandmarketing.Bysegment,1)revenuefromCarriersegmentincreasedby3.4%YoYondomesticmarketsharegainsforRANandnon-RANbusinessesandoverseasprogress.2)Consumersegmentsalesdeclinedby1.3%YoYonoverseasinventorydigestionandintensifiedcompetition,partiallyoffsetbydomesticgrowthinfamilynetworkbusiness.3)Enterprise&gov’tsegmentsalesdeclinedby7.1%YoYin2023duetoaslowdownininvestment.Lookingaheadto2024,webelieveZTEispoisedtocapitalizeonemergingtrendsinthetelecomindustry,focusingontheevolutiontowards5.5G/6GandAIcomputepower.MaintainBUYonZTE(763HK)withadjustedTPatHK$24.8,basedon10x2024EP/E,whichisclosetoits3-yearavg.(vs.previous11.4x,consideringindustryheadwindsandslower-than-expecteddevelopmentinAI).Nextcatalystmaybetelecomoperators’capexoutlook.EarningsSummary(YE31Dec)FY21AFY22AFY23AFY24EFY25ERevenue(RMBmn)114,522122,954124,251133,717142,644YoYgrowth(%)12.97.41.17.66.7Grossmargin(%)35.237.241.541.942.0Netprofit(RMBmn)6,8138,0809,32610,84212,200YoYgrowth(%)31.418.615.416.312.5P/E(x)11.29.68.47.36.5ROE(%)13.2%13.8%13.7%14.3%14.5%Source:Companydata,Bloomberg,CMBIGMestimatesTargetPriceHK$24.80(PreviousTPHK$27.40)Up/Downside38.4%CurrentPriceHK$17.92ChinaSemiLilyYANG,Ph.D(852)39163716lilyyang@cmbi.com.hkKevinZHANG(852)37618727kevinzhang@cmbi.com.hkStockDataMktCap(HK$mn)13,538.6Avg3mthst/o(HK$mn)162.052wHigh/Low(HK$)31.95/13.58TotalIssuedShares(mn)755.5Source:FactSetShareholdingStructureBlackRock7.1%VanguardGroup4.2%Source:BloombergSharePerformanceAbsoluteRelative1-mth21.9%18.4%3-mth7.2%7.1%6-mth-25.6%-17.2%Source:FactSet12-mthPricePerformanceSource:FactSetBUY(Maintain)Mar-23Jun-23Sep-23Dec-23Mar-2412.014.016.018.020.022.024.026.028.030.032.0763HKHSI(Rebased)(HK$)