Investment Rating - The investment rating for ZTE Corporation is "Buy" with a target price of HKD 23.80, which corresponds to a price-to-earnings ratio of 10.5x for 2024, 9.5x for 2025, and 8.2x for 2026 [1][5]. Core Insights - ZTE's Q1 2024 performance met expectations, with revenue of RMB 30.578 billion, a year-on-year increase of 4.9%. The gross margin decreased by 2.5 percentage points to 42.0%. Net profit attributable to shareholders rose by 3.7% to RMB 2.741 billion, while net profit excluding non-recurring items increased by 7.9% [1]. - The company is focusing on innovation and expansion based on connectivity, maintaining a leading position in wireless and fixed-line sectors, and is expected to excel in next-generation ICT technologies such as 5G-A, all-optical networks, and 6G [1]. - ZTE is poised to continue expanding in the intelligent computing sector, launching products such as intelligent servers, high-performance storage, and AI integration solutions, which are anticipated to drive growth in its computing business [1]. Summary by Sections Financial Performance - For Q1 2024, ZTE reported revenue of RMB 30.578 billion, a 4.9% increase year-on-year. The gross margin was 42.0%, down 2.5 percentage points. Net profit attributable to shareholders was RMB 2.741 billion, up 3.7% year-on-year, with a 7.9% increase in net profit after excluding non-recurring items [1]. Business Strategy - ZTE is leveraging its strong capabilities in chips, algorithms, and architecture to innovate and expand its market presence. The company aims to maintain its leadership in the ICT market through continuous research and development [1]. Product Development - The company is actively developing products in the intelligent computing space, including intelligent servers and high-performance data center switches, which are expected to enhance its competitive edge in the market [1].

Financial Performance - Operating revenue for Q1 2024 reached RMB 30,578,301 thousand, an increase of 4.93% compared to RMB 29,142,882 thousand in Q1 2023[5] - Net profit attributable to ordinary shareholders was RMB 2,740,979 thousand, up 3.74% from RMB 2,642,269 thousand in the same period last year[5] - The net profit attributable to ordinary shareholders after deducting non-recurring gains and losses was RMB 2,649,236 thousand, reflecting a 7.93% increase from RMB 2,454,518 thousand in Q1 2023[5] - Basic earnings per share for Q1 2024 was RMB 0.57, slightly up from RMB 0.56 in Q1 2023[21] - The company reported a significant reduction in operating costs, which decreased to RMB 17,728,784 thousand in Q1 2024 from RMB 27,670,016 thousand in Q1 2023[21] Cash Flow - The cash flow from operating activities was RMB 2,982,601 thousand, representing a 28.25% increase from RMB 2,325,584 thousand in the previous year[4] - In Q1 2024, the net cash flow from operating activities was RMB 2,982.6 million, a decrease of 29.3% compared to RMB 4,219.1 million in Q1 2023[22] - Total cash inflow from operating activities was RMB 36,175.3 million, while cash outflow was RMB 33,192.7 million, resulting in a net cash inflow of RMB 2,982.6 million[22] - Cash flow from investment activities showed a net outflow of RMB 15,060.9 million, compared to RMB 12,148.2 million in the same period last year, indicating increased investment expenditures[22] - Cash inflow from financing activities was RMB 88,967.8 million, with a net cash inflow of RMB 5,958.7 million, reflecting strong borrowing activity[22] Assets and Liabilities - Total assets as of March 31, 2024, amounted to RMB 208,466,634 thousand, a 3.74% increase from RMB 200,958,318 thousand at the end of 2023[5] - The total liabilities as of March 31, 2024, amounted to RMB 137,217,281 thousand, an increase from RMB 128,983,119 thousand at the end of 2023[20] - The company's total equity rose to RMB 71,249,353 thousand as of March 31, 2024, compared to RMB 61,895,721 thousand at the end of 2023[20] - The total liabilities to equity ratio as of March 31, 2024, was approximately 192.5%, indicating a high leverage position[20] Shareholder Information - As of March 31, 2024, the total number of shareholders is 482,843, with 482,539 holding A shares and 304 holding H shares[16] - The top 10 shareholders hold a total of 20.09% of the shares, with ZTE Corporation being the largest shareholder at 95,894,400 A shares[16] - The top 10 shareholders have no related party relationships or concerted actions among them[16] Research and Development - The company has ongoing research and development efforts, with intangible assets valued at RMB 7,758,763,000 as of March 31, 2024[18] - Research and development expenses increased significantly to RMB 6,375,823 thousand in Q1 2024, compared to RMB 1,778,519 thousand in Q1 2023, reflecting a focus on innovation[21] Non-Recurring Items and Other Income - Non-recurring gains totaled RMB 91,743 thousand after tax, with significant contributions from various non-operating income sources[4] - The company reported a significant decrease in financial expenses, down 64.86% to RMB (63,793) thousand, primarily due to reduced foreign exchange losses[13] - Investment income saw a drastic decline of 568.61%, resulting in a loss of RMB (131,304) thousand, attributed to the disposal of equity assets by subsidiaries[13] - Other comprehensive income after tax for Q1 2024 was RMB (51,244) thousand, compared to RMB (17,699) thousand in Q1 2023[21] Inventory and Receivables - The company has a total of 41,681,016 in inventory as of March 31, 2024, showing a slight increase from 41,131,259 as of December 31, 2023[18] - The company reported a total of 19,819,165 in accounts receivable, which is a decrease from 20,821,526 as of the end of 2023[18] Future Outlook - The company plans to continue expanding its market presence and investing in new technologies to drive future growth[21]

Financial Performance - ZTE Corporation reported a revenue of CNY 124,250.9 million in 2023, representing a year-on-year increase of 1.05% from CNY 122,954.4 million in 2022[18]. - The net profit attributable to shareholders increased by 15.41% to CNY 9,325.8 million in 2023, compared to CNY 8,080.3 million in 2022[18]. - The net cash flow from operating activities surged by 129.70% to CNY 17,405.7 million in 2023, up from CNY 7,577.7 million in 2022[18]. - Total assets reached CNY 200,958.3 million, an increase of 11.06% from CNY 180,953.6 million in 2022[18]. - The company's total liabilities rose by 9.24% to CNY 132,626.9 million in 2023, compared to CNY 121,410.4 million in 2022[18]. - Basic earnings per share increased by 14.62% to CNY 1.96 in 2023, up from CNY 1.71 in 2022[19]. - The weighted average return on equity improved to 15.19%, up 0.53 percentage points from 14.66% in 2022[18]. - The gross profit margin for 2023 was 41.53%, up 4.34 percentage points year-on-year, driven by improvements in operator networks, government and enterprise, and consumer businesses[57]. - The revenue from the carrier network segment was CNY 82,758.9 million, growing by 3.40% year-on-year, with a gross margin of 49.11%, an increase of 2.89 percentage points[62]. - The enterprise business revenue decreased by 7.14% year-on-year to CNY 13,583.5 million, but the gross margin improved by 9.59 percentage points to 34.94%[63]. - The consumer business revenue was CNY 27,908.5 million, down 1.33% year-on-year, while the gross margin increased by 4.50 percentage points to 22.26%[65]. Dividend and Shareholder Information - The company plans to distribute a cash dividend of RMB 6.83 per 10 shares to all shareholders, subject to approval at the shareholders' meeting[2]. - The proposed cash dividend for 2023 is 6.83 CNY per 10 shares, with a total cash distribution not exceeding 3.303 billion CNY, representing 35.0% of the net profit attributable to shareholders of 9.33 billion CNY[147]. - As of December 31, 2023, the company has accumulated distributable profits of approximately 25.22 billion CNY[147]. - The company has a total of 403,259 shareholders as of December 31, 2023, with 402,955 holding A-shares and 304 holding H-shares[127]. - The top 10 shareholders hold only unrestricted shares, indicating a stable shareholder structure[128]. Strategic Focus and Innovation - The company emphasizes the importance of maintaining strategic focus and innovation to navigate the increasingly competitive ICT industry[10]. - In 2024, the company aims for "strategic breakthrough" amidst complex environments and opportunities in 5G and AI-driven markets[10]. - The company plans to enhance its core competitiveness in wireless and wired products while rapidly developing its computing power business[11]. - The company is committed to precise growth strategies, focusing on accurate market positioning and resource allocation[11]. - The company aims to deepen digital transformation and optimize processes to improve operational efficiency[11]. - The company highlights the significance of ESG principles in its operations and governance[11]. - The company recognizes the dual nature of opportunities and challenges in the current technological revolution[11]. - The company is focused on leveraging its technological advantages to overcome difficulties and drive progress[11]. - The company aims to create value for customers and returns for shareholders while contributing to societal development[11]. - The company is committed to fostering a high-resilience organization and enhancing risk prevention capabilities[11]. Research and Development - Research and development investment amounted to CNY 26,783.3 million, a 14.34% increase from the previous year, representing 21.56% of operating revenue, up 2.51 percentage points[69]. - The company launched the world's first 5G cloud laptop "Yufeng 2" and achieved the top market share in the domestic cloud terminal market[62]. - The company is investing heavily in R&D, with a budget allocation of 10% of total revenue, focusing on 5G technology advancements[188]. - The group has 35,393 R&D personnel, representing 49.1% of the total workforce[199]. Market Expansion and International Presence - The company is actively expanding its overseas market presence, including a data center project for China Telecom in Indonesia[37]. - The company is focusing on the promotion of FTTR in the optical network terminal sector, enhancing smart home applications[55]. - The company is expanding its market presence in Southeast Asia, targeting a 25% market share by 2025[182]. - The company is considering strategic acquisitions to enhance its technology portfolio, with a budget of 2 billion yuan allocated for potential mergers and acquisitions[188]. Corporate Governance - The company has established a multi-layered corporate governance system to enhance operational transparency and efficiency[123]. - The company has a mission to connect the world through networks and lead innovation for the future[122]. - The company has a compliance management committee overseeing adherence to laws and regulations impacting its operations[112]. - The company has established clear contracts with financial institutions to minimize operational risks[110]. - The company has a board diversity policy, currently with 22% female representation among board members[155]. Risk Management - The company faces various operational risks, including country risk, intellectual property risk, and exchange rate risk, which may impact its business operations[117][118][119]. - The company is committed to enhancing compliance management to mitigate risks associated with international operations across over 100 countries[117]. - The company has established a risk control system for derivative transactions to mitigate legal risks and enhance financial stability[110]. - The company is actively expanding its global low-cost financing channels to manage interest rate risk through diversified debt structures[120]. Employee and Workforce Information - As of December 31, 2023, the total number of employees in the group is 72,093, with an average age of 34.6 years[198]. - Female employees account for approximately 23.9% of the total workforce, totaling 17,233 individuals[198]. - The total employee compensation for the group in 2023 is approximately 30 billion yuan[200]. - Employee compensation includes salaries, bonuses, and allowances[200]. - The company has implemented a recruitment strategy focused on diversity in gender, age, education, and professional experience[199].

Investment Rating - Target price: HKD 24.80 (previously HKD 27.40), with a potential upside of 38.4% from the current price of HKD 17.92 [1] - Maintains a "Buy" rating for ZTE Corporation (763 HK) based on a 10x FY24E P/E ratio, close to its three-year average [2] Core Views - ZTE's FY23 revenue reached RMB 124 billion, up 1.1% YoY, in line with Bloomberg expectations and 3% above the firm's forecast [2] - FY23 net profit grew 15.4% YoY to RMB 9.3 billion, 5% below Bloomberg expectations but in line with the firm's forecast [2] - FY23 gross margin improved to 41.5%, up 4.34 percentage points from FY22, driven by operational optimization and cost reduction through in-house components [2] - FY23 net profit margin rose to 7.5%, up from 4.2%/5.9%/6.6% in FY20-22 [2] - 4Q23 revenue grew 14.7% YoY and 21.5% QoQ, while net profit increased 17.8% YoY but declined 37.3% QoQ due to product mix changes and higher employee benefits and marketing expenses [2] - ZTE is expected to benefit from telecom industry trends, focusing on 5.5G/6G and AI computing capabilities [2] Financial Summary Revenue and Profit - FY21A-FY25E revenue: RMB 114.5 billion, RMB 123.0 billion, RMB 124.3 billion, RMB 133.7 billion, RMB 142.6 billion [1] - FY21A-FY25E net profit: RMB 6.8 billion, RMB 8.1 billion, RMB 9.3 billion, RMB 10.8 billion, RMB 12.2 billion [1] - FY21A-FY25E revenue growth: 12.9%, 7.4%, 1.1%, 7.6%, 6.7% [1] - FY21A-FY25E net profit growth: 31.4%, 18.6%, 15.4%, 16.3%, 12.5% [1] Margins and Ratios - FY21A-FY25E gross margin: 35.2%, 37.2%, 41.5%, 41.9%, 42.0% [1] - FY21A-FY25E P/E ratio: 11.2x, 9.6x, 8.4x, 7.3x, 6.5x [1] - FY21A-FY25E ROE: 13.2%, 13.8%, 13.7%, 14.3%, 14.5% [1] Business Segments - Carrier network revenue grew 3.4% YoY, driven by domestic wireline and wireless market optimization and overseas strategic progress [2] - Consumer business revenue declined 1.3% YoY due to overseas inventory digestion and competition, partially offset by domestic home network growth [2] - Government and enterprise revenue fell 7.1% YoY, impacted by industry investment and key customer construction timing [2] Forecast Comparison - FY24E revenue: RMB 133.7 billion (firm) vs. RMB 152.8 billion (Bloomberg consensus), 12% lower [7] - FY24E net profit: RMB 10.8 billion (firm) vs. RMB 11.2 billion (Bloomberg consensus), 3% lower [7] - FY24E gross margin: 41.9% (firm) vs. 37.7% (Bloomberg consensus), 4.2 percentage points higher [7] - FY24E net margin: 8.1% (firm) vs. 7.3% (Bloomberg consensus), 0.8 percentage points higher [7] Shareholder Structure - BlackRock holds 7.1% and Vanguard holds 4.2% of ZTE's shares [4] Stock Performance - 1-month absolute return: 21.9%, relative return: 18.4% [5] - 3-month absolute return: 7.2%, relative return: 7.1% [5] - 6-month absolute return: -25.6%, relative return: -17.2% [5] Financial Statements Income Statement - FY21A-FY25E operating income: RMB 114.5 billion, RMB 123.0 billion, RMB 124.3 billion, RMB 133.7 billion, RMB 142.6 billion [9] - FY21A-FY25E operating profit: RMB 8.5 billion, RMB 10.6 billion, RMB 11.0 billion, RMB 12.2 billion, RMB 12.9 billion [9] - FY21A-FY25E net profit: RMB 6.8 billion, RMB 8.1 billion, RMB 9.3 billion, RMB 10.8 billion, RMB 12.2 billion [9] Balance Sheet - FY21A-FY25E total assets: RMB 168.8 billion, RMB 181.0 billion, RMB 201.0 billion, RMB 194.6 billion, RMB 206.5 billion [9] - FY21A-FY25E total liabilities: RMB 115.5 billion, RMB 121.4 billion, RMB 132.6 billion, RMB 118.8 billion, RMB 122.4 billion [9] - FY21A-FY25E total equity: RMB 51.5 billion, RMB 58.6 billion, RMB 68.0 billion, RMB 75.6 billion, RMB 84.0 billion [9] Cash Flow - FY21A-FY25E net operating cash flow: RMB 15.7 billion, RMB 7.6 billion, RMB 17.4 billion, RMB 29.3 billion, RMB 11.6 billion [10] - FY21A-FY25E net investment cash flow: RMB -10.6 billion, RMB -1.3 billion, RMB -20.9 billion, RMB -2.3 billion, RMB -2.6 billion [10] - FY21A-FY25E net financing cash flow: RMB 2.8 billion, RMB 1.5 billion, RMB 7.4 billion, RMB -16.2 billion, RMB -8.0 billion [10]

Investment Rating - Maintain BUY rating with an adjusted target price of HK$24.8, based on 10x 2024E P/E, close to its 3-year average [3][4] Core View - ZTE is expected to capitalize on emerging trends in the telecom industry, focusing on the evolution towards 5.5G/6G and AI compute power [3] - The company's profitability improved steadily due to operation optimization and cost reduction, including the use of self-developed components [3] - Revenue growth is projected to be steady, with FY24E revenue expected to reach RMB133.7bn, a 7.6% YoY increase [1][3] Financial Performance - FY23 revenue grew by 1.1% YoY to RMB124.3bn, in line with consensus and 3% higher than forecasts [3] - FY23 net profit increased by 15.4% YoY to RMB9.3bn, 5% lower than consensus but in line with forecasts [3] - Gross margin for FY23 was 41.5%, a 434bps increase from FY22, driven by cost optimization and favorable revenue mix [3] - FY24E net profit is projected to grow by 16.3% YoY to RMB10.8bn, with a net margin of 8.1% [1][3] Segment Performance - Carrier segment revenue increased by 3.4% YoY, driven by domestic market share gains and overseas progress [3] - Consumer segment sales declined by 1.3% YoY due to overseas inventory digestion and intensified competition, partially offset by domestic growth in family network business [3] - Enterprise & government segment sales declined by 7.1% YoY in 2023 due to a slowdown in investment [3] Valuation Metrics - FY24E P/E is projected at 7.3x, with ROE expected to reach 14.3% [1] - FY25E P/E is projected at 6.5x, with ROE expected to reach 14.5% [1] Market Data - Current price is HK$17.92, with an upside potential of 38.4% to the target price of HK$24.8 [4] - Market capitalization is HK$13.5bn, with an average 3-month turnover of HK$162mn [5]

Financial Performance - ZTE Corporation reported a revenue of CNY 124,250.9 million in 2023, representing a 1.05% increase from CNY 122,954.4 million in 2022[19]. - The net profit attributable to shareholders increased by 15.41% to CNY 9,325.8 million in 2023, up from CNY 8,080.3 million in 2022[19]. - The net cash flow from operating activities surged by 129.70% to CNY 17,405.7 million in 2023, compared to CNY 7,577.7 million in 2022[19]. - Total assets grew by 11.06% to CNY 200,958.3 million in 2023, up from CNY 180,953.6 million in 2022[19]. - The weighted average return on equity increased to 15.19% in 2023, up from 14.66% in 2022[19]. - Basic earnings per share rose by 14.62% to CNY 1.96 in 2023, compared to CNY 1.71 in 2022[20]. - The gross profit margin for 2023 was 41.53%, up 4.34 percentage points year-on-year, driven by improvements in operator networks, government and enterprise, and consumer businesses[58]. - The domestic market revenue reached 86,485.4 million, with a year-on-year growth of 1.45%, accounting for 69.61% of total revenue[61]. - The international market revenue was 37,765.5 million, with a year-on-year increase of 0.15%, making up 30.39% of total revenue[62]. Dividend and Profit Distribution - The company reported a profit distribution plan for 2023, proposing a cash dividend of RMB 6.83 per 10 shares, subject to shareholder approval[3]. - The proposed cash dividend for 2023 is 6.83 CNY per 10 shares, with a total cash distribution not exceeding 3.303 billion CNY, representing 35.0% of the net profit attributable to shareholders of 9.33 billion CNY[148]. - The company has maintained a profit distribution policy of distributing no less than 30% of the average annual distributable profit over the last three years[146]. - As of December 31, 2023, the company has accumulated distributable profits of approximately 25.22 billion CNY[148]. Governance and Compliance - The company emphasizes compliance with laws and regulations affecting its operations, including data compliance and anti-corruption measures[113]. - The company has a dedicated compliance management committee overseeing various compliance areas[113]. - The board of directors is responsible for major operational decisions, ensuring independent and efficient governance[126]. - The company is committed to improving corporate governance practices and has reviewed its governance policies in 2023[152]. - The independent non-executive directors have extensive experience in finance, law, and compliance, contributing to the board's effectiveness[156]. Research and Development - The company maintained a strong focus on R&D in "connectivity + computing power + capabilities + intelligence" technologies, ensuring its core products remain competitive in the industry[24]. - Research and development investment amounted to CNY 26,783.3 million, a 14.34% increase from the previous year, representing 21.56% of total operating revenue, up by 2.51 percentage points[70]. - The company has 35,393 R&D personnel, representing 49.1% of the total workforce[200]. - The R&D budget has been increased to $GG million, focusing on next-generation telecommunications technology[189]. Market Strategy and Expansion - The company is focused on expanding its market presence and exploring new growth opportunities[12]. - The company is actively investing in AI technology, establishing multiple product lines and laboratories to support the development of intelligent computing solutions[25]. - The company is committed to digital transformation and green low-carbon development, positioning itself as a key player in the digital economy[25]. - The company is exploring potential mergers and acquisitions to enhance its product offerings and market reach, with a budget of $GG million set aside for this purpose[183]. Risk Management - The company is committed to managing foreign exchange risks through various strategies, including internal settlement management and the use of foreign exchange derivatives[120]. - The company faces interest rate risk primarily from interest-bearing liabilities, with total interest expenses affected by fluctuations in domestic and foreign currency interest rates[121]. - The company employs credit risk management measures, including credit investigations and insurance, to mitigate the impact of varying customer creditworthiness[122]. Corporate Social Responsibility - The company highlights the significance of ESG principles in its operations and governance[12]. - The company made approximately CNY 26.06 million in charitable donations in 2023[114]. - The company is committed to improving its environmental performance and promoting sustainable waste management[114]. Employee and Workforce - As of December 31, 2023, the total number of employees in the group is 72,093, with an average age of 34.6 years[199]. - Female employees account for approximately 23.9% of the total workforce, while male employees make up about 76.1%[199]. - The group employs 28,951 individuals with a master's degree, accounting for 40.2% of the total workforce[200]. - The company has a diverse hiring strategy focusing on gender, age, cultural and educational background, and professional experience[200].

Financial Reports and Approvals - The company approved the 2023 annual financial report, which will be submitted for shareholder review[5] - The company’s 2023 annual report and performance announcement were approved for submission to the shareholders[5] - The company’s audit committee provided a summary report on the 2023 audit work, which was approved unanimously[6] - The company’s 2023 sustainability report was approved and will be published[7] - The company approved the profit distribution plan for 2023, which will be submitted to the shareholders' meeting for review[28] Share Capital and Issuance - The total number of ordinary shares issued by the company increased from 4,613,434,898 to 4,783,251,552, with H shares accounting for 15.79% and domestic shares for 84.21%[7] - The registered capital of the company increased from RMB 4,613,434,898 to RMB 4,783,251,552[7] - The board has proposed to seek authorization from the shareholders' meeting for general issuance of additional shares, not exceeding 20% of the total issued share capital of A-shares and H-shares as of the resolution date[30] - The authorization period for the issuance of shares is from the approval date until the earlier of the next annual shareholders' meeting or the date of a special resolution to revoke or amend the authorization[30] Shareholder Rights and Voting - Shareholders with over 1% voting rights can propose independent non-executive director candidates, which will be decided by a vote at the shareholders' meeting[9] - The company emphasized that voting rights must be exercised based on the number of shares held, with each share granting one vote, excluding shares held by the company itself[8] - The company will separately count votes from minority investors on significant matters affecting their interests[8] - The company prohibits the collection of voting rights from shareholders in a paid or disguised paid manner[17] - The company has clarified the voting rights associated with unfilled or incorrectly filled ballots, treating them as abstentions[20] Independent Non-Executive Directors - Independent non-executive directors must meet specific independence criteria and cannot have significant relationships with the company or its major shareholders[9] - The company highlighted the importance of independent non-executive directors having at least five years of relevant work experience[9] - Independent non-executive directors must disclose reasons for resignation and ensure compliance with legal and company regulations regarding board composition[24] - Independent non-executive directors have special powers, including the ability to approve major related transactions and propose the convening of extraordinary shareholder meetings[24] - Independent non-executive directors must provide independent opinions on significant matters, including the nomination and dismissal of directors and senior management[12] Financial Performance and Projections - The company reported a revenue increase of 15% year-over-year, reaching $1.2 billion in the last quarter[22] - User data showed a growth of 25% in active users, totaling 5 million users by the end of the quarter[22] - The company provided a forward guidance of 10% revenue growth for the next quarter, projecting revenues of approximately $1.32 billion[22] - New product launches contributed to 30% of total sales, with the latest product generating $360 million in revenue[22] - The company completed a strategic acquisition, enhancing its product portfolio and expected to add $200 million in annual revenue[22] Corporate Governance and Committees - The audit committee is responsible for overseeing the internal audit system and communication with external auditors[13] - The compensation and assessment committee will research and propose standards for evaluating senior management performance[13] - The board has passed the resolution to modify the terms of the Compensation and Assessment Committee's working rules, focusing on performance management and equity incentive plans[27] External Guarantees and Investments - The company has set a threshold for external guarantees, requiring shareholder approval if the total amount exceeds 50% of the latest audited net assets[13] - Any external guarantees provided by the company must not exceed 30% of the latest audited total assets[13] - The company will require shareholder approval for any single guarantee amount exceeding 10% of the latest audited net assets[13] - The company approved external investments related to its main business, not exceeding 10% of the latest audited net assets[20] Sustainability and Future Plans - The management emphasized a commitment to sustainability, aiming for a 50% reduction in carbon emissions by 2025[22] - The company plans to enhance customer engagement through new digital platforms, expecting a 15% increase in customer retention rates[22] - The company plans to conduct hedging derivative transactions in 2024, with the proposal submitted for shareholder approval[6] - The company plans to provide guarantee limits for subsidiaries in 2024, pending shareholder approval[6] Share Buyback Program - The board has proposed a share repurchase authorization for the year 2024, allowing the board to repurchase up to 5% of the total issued shares[31] - The repurchase will be funded by the company's own funds or other legally compliant sources[31] - The board is authorized to determine the final repurchase plan and terms based on market conditions and the company's financial status[31] - The authorization period lasts until the earlier of the annual general meeting conclusion or a resolution to revoke or modify the authorization[32]

M N 28 Feb 2024 CMB International Global Markets | Equity Research | Company Update ZTE (763 HK) MWC 2024: Industry moves towards developing 6G Target Price HK$27.4 As the Mobile World Congress (MWC) unfolded in Barcelona on Monday, AI/5G+6G innovations emerged as a dominant theme, with leading suppliers in (Previous TP HK$27.4) the telecom industry showcasing their latest technologies. ZTE's A-share Up/Downside 56.2% (000063 CH) and H-share (763 HK) prices surged by 10.0% and 10.6%, Current Price HK$17.54 ...

Financial Performance - Operating revenue for Q3 2023 reached RMB 28,688,649 thousand, representing a year-on-year increase of 12.38%[4] - Net profit attributable to ordinary shareholders for Q3 2023 was RMB 2,369,013 thousand, up 5.09% compared to the same period last year[4] - Net profit excluding non-recurring gains and losses for Q3 2023 was RMB 2,191,944 thousand, an increase of 20.08% year-on-year[4] - Operating profit for the third quarter of 2023 was RMB 2,414,137 thousand, compared to RMB 2,287,915 thousand in the third quarter of 2022, showing a growth of 5.5%[18] - Net profit for the first nine months of 2023 reached RMB 7,756,815 thousand, representing an increase of 13.9% from RMB 6,690,245 thousand in the first nine months of 2022[17] - The company reported a total comprehensive income of RMB 7,705,363 thousand for the first nine months of 2023, an increase from RMB 6,652,457 thousand in the same period of 2022[17] - For the period of July to September 2023, the total comprehensive income attributable to the parent company's ordinary shareholders was RMB 2,369,793,000, compared to RMB 702,311,000 in the same period of 2022, representing a significant increase[19] Cash Flow - Net cash flow from operating activities for Q3 2023 surged to RMB 2,836,118 thousand, a significant increase of 1,169.63% compared to the previous year[4] - The net cash flow from operating activities for the first nine months of 2023 was RMB 9,262,015, an increase of 148.78% compared to 3,723,015 in the same period of 2022[10] - The net cash flow from investing activities for the first nine months of 2023 was a negative RMB 4,319,503,000, compared to a positive RMB 956,631,000 in the same period of 2022, indicating increased investment outflows[21] - The net cash flow from financing activities for the first nine months of 2023 was RMB 4,217,404,000, a decrease from RMB 4,613,536,000 in the same period of 2022[21] - The cash inflow from sales of goods and services for the third quarter of 2023 was RMB 93,639,500,000, down from RMB 107,161,301,000 in the same quarter of 2022, indicating a decline in revenue[20] - The cash outflow for purchasing goods and services in the third quarter of 2023 was RMB 55,482,407,000, compared to RMB 93,837,839,000 in the same period of 2022, showing a reduction in costs[20] - The company received RMB 205,888,085,000 in cash from borrowings during the first nine months of 2023, significantly higher than RMB 102,088,001,000 in the same period of 2022, indicating increased leverage[21] - The foreign exchange impact on cash and cash equivalents for the third quarter of 2023 was RMB 268,452,000, compared to RMB 355,049,000 in the same period of 2022, reflecting a decrease in foreign exchange gains[21] Assets and Liabilities - Total assets as of September 30, 2023, amounted to RMB 189,057,761 thousand, reflecting a year-on-year growth of 4.48%[4] - The total assets as of September 30, 2023, amounted to 189,057,761, up from 180,953,574 at the end of 2022[14] - The total liabilities as of September 30, 2023, amounted to RMB 122,262,312 thousand, an increase from RMB 121,410,351 thousand at the end of 2022[15] - The company's total equity increased to RMB 66,795,449 thousand as of September 30, 2023, compared to RMB 59,543,223 thousand at the end of 2022, reflecting strong retained earnings[15] - The total current assets as of September 30, 2023, were 147,766,170, compared to 137,873,843 at the end of 2022[14] - The total liabilities to equity ratio as of September 30, 2023, was approximately 1.83, indicating a stable leverage position compared to previous periods[15] Expenses and Losses - The financial expenses for the first nine months of 2023 were (887,295), reflecting a 391.42% increase due to foreign exchange gains compared to losses in the same period last year[9] - Investment income showed a loss of (789,355), a 170.38% decline from a profit of 1,121,609 in the previous year, primarily due to losses from derivative contracts[9] - The impairment loss on assets increased by 88.80% to (816,540), mainly due to increased inventory write-downs[9] - The fair value change in financial assets resulted in a loss of (178,657), an improvement of 84.05% compared to (1,120,320) in the previous year[9] - The company reported a significant decrease in trade financial assets by 43.31% year-on-year, primarily due to the disposal of equity holdings by a subsidiary[6] Research and Development - Research and development expenses for the first nine months of 2023 were RMB 19,060,762 thousand, significantly higher than RMB 5,768,997 thousand in the same period of 2022, indicating a focus on innovation[16] Future Outlook - The company plans to continue expanding its market presence and investing in new technologies to drive future growth[2]

Financial Performance - The company reported a total revenue of RMB 50 billion for the first half of 2023, representing a year-on-year increase of 15%[1]. - The company has set a revenue guidance of RMB 100 billion for the full year 2023, indicating a projected growth of 20%[1]. - The company's operating revenue for the first half of 2023 was CNY 60,704,794, representing a year-on-year increase of 1.48% compared to CNY 59,818,300 in the same period of 2022[23]. - Net profit attributable to ordinary shareholders of the listed company reached CNY 5,472,153, marking a significant increase of 19.85% from CNY 4,565,826 in the first half of 2022[23]. - The total comprehensive income for the first half of 2023 was RMB 5,340,821 thousand, compared to RMB 4,542,195 thousand in the same period of 2022, marking a growth of 17.59%[177]. - The company reported a net profit of RMB 4,176,818 thousand for the first half of 2023, which is a 112.3% increase compared to RMB 1,968,399 thousand in the same period of 2022[184]. Research and Development - Investment in R&D increased by 25% year-on-year, totaling RMB 5 billion, focusing on AI and 5G technologies[1]. - Research and development (R&D) expenses for the first half of 2023 amounted to 12,791,032 thousand RMB, representing a year-on-year increase of 26.00% and accounting for 21.07% of operating revenue, up 4.10 percentage points from the previous year[53]. - The company maintained a strong focus on R&D investment, enhancing key technologies and product competitiveness, aligning with global digitalization and green low-carbon development trends[27]. Market Expansion and Strategy - The company plans to expand its market presence in Southeast Asia, targeting a 30% increase in market share by 2025[1]. - The company is exploring potential mergers and acquisitions to enhance its technology portfolio and market reach[1]. - The company continues to focus on providing end-to-end products and solutions in the ICT industry, with no major changes in its main business during the first half of 2023[19]. Product Development and Innovation - A new product line in the AI-driven telecommunications sector is expected to launch in Q4 2023, aiming to capture a significant portion of the market[1]. - The company launched several industry-first products, including a 12-channel ultra-wideband RRU and a 128TR AAU with throughput exceeding 10Gbps, which can reduce site rental costs by up to 60% and save energy by over 30%[29]. - The company’s new Fit-it-all 5G private network products cater to diverse needs across various scenarios, including compact and mini versions for specialized applications[29]. Financial Management and Stability - The company has maintained a robust financial management policy, ensuring sufficient funds for debt repayment and normal operations[67]. - The company’s cash needs are primarily for production and operations, repayment of maturing debts, capital expenditures, and payment of interest and dividends[67]. - The company has not encountered any bankruptcy restructuring situations in the first half of 2023[167]. Environmental and Social Responsibility - The company has initiated a green energy strategy, aiming for a 50% reduction in carbon emissions by 2025[1]. - The group provided economic assistance to 1,100 underprivileged high school students across 12 schools in five provinces, including Gansu and Qinghai, through its educational support programs[145]. - The group actively engaged in rural revitalization projects, including digital village construction and infrastructure development in regions such as Gansu and Xinjiang[145]. Legal Matters - In the first half of 2023, ZTE Brazil initiated a lawsuit for approximately 31.35 million Brazilian Reais (about 47.22 million RMB) against a Brazilian company for unpaid goods[147]. - The company believes that the ongoing legal matters will not have a significant adverse impact on its financial condition and operating results[148]. Shareholder Information - As of June 30, 2023, the total number of shareholders is 256,086, with 255,780 holding A-shares and 306 holding H-shares[99]. - The company distributed a cash dividend of 4 RMB per 10 shares, totaling 1,895,849,847.2 RMB (including tax) based on the total issued share capital of 4,739,624,618 shares as of the dividend record date[111]. Risk Management - The company faces various operational risks, including country-specific risks due to its operations in over 100 countries, which may impact its business[92]. - Interest rate risks are managed through structured management of interest-bearing liabilities, aiming to control total interest expenses and maintain profitability[95].