Core Viewpoint - ZTE Corporation's Q3 2025 performance significantly underperformed market consensus expectations in terms of revenue, profit margins, and earnings due to changes in product structure and weak telecom capital expenditures [1] Group 1: Financial Performance - ZTE's revenue and profit margins were notably lower than market expectations for Q3 2025 [1] - The operator network business, which typically has high profit margins, performed much worse than anticipated due to weak telecom capital spending [1] - Issues related to revenue recognition timing further exacerbated the situation [1] Group 2: Future Outlook - ZTE is expected to start recognizing related revenues in Q4, which should lead to a significant recovery in the operator network business [1] - The target price for ZTE's stock has been lowered from HKD 40 to HKD 35.8, while maintaining a "Hold" rating [1]

该行维持"持有"评级，将其目标价由40港元下调至35.8港元。 大华继显发表报告指，中兴通讯第三季业绩在收入、利润率及盈利层面均显著低于市场共识预期，主要 归因于产品结构变化，高利润的营运商网络业务因电信资本支出疲弱而表现远逊预期，收入确认时点问 题更进一步加剧此状况。随着中兴于第四季开始确认相关收入，营运商网络业务应会出现显著复苏。 ...

Core Viewpoint - ZTE Corporation is experiencing a significant transformation period, with its third-quarter financial results showing a sharp decline in net profit despite revenue growth, indicating challenges in maintaining profitability during its transition to new business areas [2][3]. Financial Performance - In the first three quarters of the year, ZTE's revenue exceeded 100 billion yuan, growing by 11.63% to 100.52 billion yuan, while net profit dropped by 32.69% to 5.322 billion yuan, reflecting a situation of increasing revenue but decreasing profit [2]. - For the third quarter alone, ZTE reported revenue of 28.967 billion yuan, a year-on-year increase of 5.11%, but net profit plummeted by 87.84% to only 264 million yuan, with a non-recurring net profit of -225 million yuan, indicating a shift from profit to loss [2][3]. Business Segments - ZTE's operations are divided into three main segments: carrier networks, government and enterprise business, and consumer business, with the carrier networks segment historically being the primary revenue and profit driver [2]. - The carrier networks segment's revenue for the first three quarters was 35.064 billion yuan, down 5.99% year-on-year, marking the first time its revenue share fell below 50% in a decade [3]. Transition Challenges - The decline in capital expenditure from major telecom operators in China has pressured ZTE's carrier networks business, with a reported 16.5% decrease in capital spending expected by mid-2025 [3]. - ZTE is currently undergoing a critical transformation phase, with a projected decline in both revenue and profit for the 2024 annual report, forecasting a revenue of 121.299 billion yuan, down 2.38%, and a net profit of 8.425 billion yuan, down 9.66% [3]. Leadership Change - In March, ZTE appointed its first female chairperson, Fang Rong, following the resignation of former chairman Li Zixue, who had led the company through significant growth during the 5G construction boom [4][5]. New Business Focus - Under Fang Rong's leadership, ZTE aims to pivot towards new business opportunities in the AI-driven industry, emphasizing the importance of transitioning from a connectivity-focused model to one that integrates computing power [5]. - The company's computing power segment has shown substantial growth, with revenue increasing by 180% year-on-year, although it still only accounts for 25% of total revenue [5]. Profitability Concerns - ZTE's overall gross margin has decreased to 32.45%, down 7.99 percentage points year-on-year, with the carrier networks segment maintaining a higher margin of 52.94%, while the consumer business and government enterprise business have significantly lower margins [6][8]. - The third-quarter gross margin further declined to 25.85%, highlighting the need for ZTE to enhance the profitability of its expanding computing power business [8]. Cost Management - In response to the ongoing transformation pressures, ZTE has implemented cost-cutting measures, reducing management expenses by 10.77% to 2.884 billion yuan, while sales and R&D expenses also saw declines [8].

Core Viewpoint - ZTE Corporation achieved a net profit attributable to shareholders of 5.322 billion yuan in the first three quarters of 2025, with 264 million yuan in Q3 2025, indicating strong performance in the domestic intelligent computing market and increasing overseas market share in the operator sector [1] Segment Summaries Network Segment - The network segment accounted for 50% of total revenue in the first three quarters of 2025, with ongoing advancements in integrated technologies such as space-ground integration and sensing integration [1] - The commercial rollout of 5G-A is ongoing, and efforts are being made to promote the evolution towards 6G [1] Computing Power Segment - The computing power segment saw a year-on-year revenue growth of 180%, contributing 25% to total revenue [1] - Revenue from servers and storage increased by 250%, while data center products grew by 120% [1] - ZTE's intelligent computing servers have entered partnerships with major domestic internet and financial companies such as BBAT, JD.com, and Meituan, and are expanding overseas collaborations [1] - The company has secured multiple core node projects in domestic data centers and is actively expanding into Latin America, North Africa, and Central Asia [1] Home and Personal Segment - The home and personal segment also contributed 25% to total revenue, with personal business revenue experiencing double-digit growth [1] - Overseas mobile phone sales increased by over 25%, with the launch of new models such as the Red Magic 11 Pro series and Nubia Z80 Ultra, which integrate the Doubao AI large model [1] AI and Infrastructure - The company is fully invested in AI, establishing a robust foundation for intelligent computing through self-developed chips, super-node servers, and high-speed switches [1] - With the commercial rollout of 5G-A and ongoing construction of computing power, the long-term development of the second curve business is viewed positively, maintaining a "buy" rating [1]

Core Viewpoint - ZTE Corporation is experiencing a significant transformation period, with its third-quarter financial results showing a sharp decline in net profit despite revenue growth, indicating challenges in maintaining profitability amidst changing market conditions [1][3]. Financial Performance - In the first three quarters of the year, ZTE's revenue exceeded 100 billion yuan, reaching 1005.2 billion yuan, a year-on-year increase of 11.63%, while net profit attributable to shareholders fell by 32.69% to 53.22 billion yuan [1]. - For the third quarter alone, ZTE reported revenue of 289.67 billion yuan, a year-on-year increase of 5.11%, but net profit dropped dramatically by 87.84% to only 2.64 billion yuan, with a non-recurring net profit of -2.25 billion yuan, indicating a shift from profit to loss [1][3]. Business Segments - ZTE's business is divided into three main segments: carrier networks, government and enterprise business, and consumer business, with the carrier networks segment historically being the primary revenue and profit driver [3]. - The carrier networks segment's revenue for the first three quarters was 350.64 billion yuan, a year-on-year decline of 5.99%, marking the first time its revenue share fell below 50% in nearly a decade [3][4]. Transition and Strategic Focus - ZTE is currently undergoing a critical transformation, with a focus on expanding into AI-driven and digital solutions as traditional telecom infrastructure investments decline [4]. - The newly appointed chairperson, Fang Yong, emphasized the urgency of transitioning from a "connectivity" model to a "connectivity + computing power" model in her inaugural address [4]. Growth in New Business Areas - ZTE's computing power business has shown substantial growth, with revenue increasing by 180% year-on-year, including a 250% increase in server and storage revenue and a 120% increase in data center product revenue [4]. - Despite this growth, the computing power segment only accounts for 25% of total revenue, indicating that it is not yet sufficient to offset declines in traditional high-margin businesses [4][5]. Profitability Challenges - The overall gross margin for ZTE decreased to 25.85% in the third quarter, reflecting ongoing profitability pressures as the company expands its computing power business while facing declining margins in traditional segments [7]. - The company has been implementing cost-cutting measures, with reductions in sales, management, and R&D expenses, although R&D spending remains high at nearly 18% of revenue [7].

Market Overview - On October 30, the Hang Seng Index fell by 0.24% with a total southbound trading volume of HKD 152.84 billion, including HKD 83.24 billion in buying and HKD 69.60 billion in selling, resulting in a net buying amount of HKD 13.64 billion [1][2] - The southbound trading through Stock Connect (Shenzhen) had a total trading volume of HKD 60.21 billion, with net buying of HKD 7.03 billion, while the trading through Stock Connect (Shanghai) had a total trading volume of HKD 92.63 billion, with net buying of HKD 6.61 billion [1] Active Stocks - The most actively traded stock by southbound funds was Alibaba-W, with a total trading amount of HKD 110.61 billion, followed by SMIC and Tencent Holdings with trading amounts of HKD 90.40 billion and HKD 55.25 billion respectively [1][2] - The net buying stocks included eight companies, with the largest net buying amount in the Tracker Fund of Hong Kong (盈富基金) at HKD 46.33 billion, despite a closing price drop of 0.11% [1][2] - Other notable net buying amounts were Alibaba-W at HKD 8.76 billion and Meituan-W at HKD 8.06 billion [1] Continuous Net Buying - Two stocks experienced continuous net buying for more than three days, with SMIC and Huahong Semiconductor having net buying days of seven and four respectively [2] - The total net buying amount for SMIC was HKD 30.44 billion, while Huahong Semiconductor had a net buying amount of HKD 19.22 billion [2]

Market Overview - On October 30, the Hang Seng Index fell by 0.24%, closing at 26,282.69 points, while southbound funds through the Stock Connect recorded a net purchase of HKD 13.641 billion [1] Trading Activity - The total trading volume for the Stock Connect on October 30 was HKD 152.837 billion, with a net purchase of HKD 13.641 billion. Specifically, the Shanghai Stock Connect had a trading volume of HKD 92.627 billion and a net purchase of HKD 6.612 billion, while the Shenzhen Stock Connect had a trading volume of HKD 60.210 billion and a net purchase of HKD 7.030 billion [1] Active Stocks - In the Shanghai Stock Connect, Alibaba-W had the highest trading volume at HKD 64.51 billion, followed by SMIC and Tencent Holdings with trading volumes of HKD 52.19 billion and HKD 32.90 billion, respectively. In terms of net buying, the Yingfu Fund led with a net purchase of HKD 2.930 billion, while Alibaba-W had the highest net selling at HKD 0.386 billion [1][2] Shenzhen Stock Connect Highlights - In the Shenzhen Stock Connect, Alibaba-W also topped the trading volume with HKD 46.11 billion, followed by SMIC and Xiaomi Group with HKD 38.20 billion and HKD 24.08 billion, respectively. The Yingfu Fund recorded a net purchase of HKD 1.703 billion, while SMIC had the highest net selling at HKD 0.537 billion [2]

Group 1 - Southbound funds net bought Hong Kong stocks worth 13.641 billion HKD today [1] - The top net purchases included: - Tracker Fund of Hong Kong (46.33 million HKD) - Alibaba Group (8.75 million HKD) - Meituan (8.05 million HKD) - Hang Seng China Enterprises Index (7.72 million HKD) - CNOOC (5.74 million HKD) - Hua Hong Semiconductor (4.69 million HKD) - Xiaomi Group (2.01 million HKD) [1] - The top net sales included: - ZTE Corporation (3.23 million HKD) - Ganfeng Lithium (3.06 million HKD) - Tencent Holdings (2.64 million HKD) - Innovent Biologics (1.72 million HKD) [1] Group 2 - Southbound funds have net bought SMIC for 7 consecutive days, totaling 30.4402 million HKD [1] - Southbound funds have net bought Hua Hong Semiconductor for 4 consecutive days, totaling 19.2152 million HKD [1]

Core Viewpoint - The report from Jefferies indicates that ZTE Corporation (00763) is overvalued, maintaining a "Underperform" rating after a 100% increase in stock price, with a projected P/E ratio of 24 times for 2025 and a negative CAGR of -6.5% for earnings per share [1] Financial Performance - ZTE's Q3 2025 revenue, core operating profit, and net profit showed year-on-year growth of 5%, but declines of 115% and 88% respectively, significantly missing market expectations [1] - Gross margin fell from 40% to 26% year-on-year, leading to a 33% decline in gross profit, attributed to delays in telecom equipment delivery and weak telecom demand [1] Market Consensus and Projections - Jefferies' net profit forecasts for 2026 and 2027 are 35% and 48% lower than market consensus, respectively [1] - The firm anticipates that high-margin telecom revenues may experience double-digit declines in 2025 due to further capital expenditure cuts by Chinese telecom operators [1] Valuation Adjustments - The target price for ZTE has been reduced from HKD 27.27 to HKD 25.71 [1] - There is a risk of valuation downgrades as investor optimism regarding new business ventures is unlikely to materialize [1]

Core Viewpoint - ZTE Corporation is experiencing a stark contrast in performance, with significant revenue growth but a drastic decline in net profit, raising concerns among investors [1][2]. Group 1: Financial Performance - In the first three quarters, ZTE's revenue exceeded 100 billion yuan, with a remarkable 180% increase in computing revenue [1]. - However, net profit for a single quarter plummeted by 88%, leading to a more than 30% decline in net profit for the first three quarters [1][2]. - The market reacted negatively, with ZTE's A-shares dropping over 6% and its market value falling below 220 billion yuan [2]. Group 2: Market Dynamics - The telecommunications sector, particularly the operator network business, has been ZTE's cash cow, but investment from operators is tightening [3]. - Capital expenditure from the three major domestic operators fell by over 16% year-on-year, marking the highest decline in nearly three years [3]. - As 5G coverage exceeds 90% in administrative villages, the large-scale investment wave is receding, leading to a shift in investment focus towards computing and AI infrastructure [3][4]. Group 3: Business Segments - ZTE's operator network revenue has seen a decline, with a year-on-year drop of 15.02% last year and 5.99% in the first half of this year [4]. - The operator network business's revenue share fell below 50% for the first time in a decade, indicating a significant shift in the company's revenue structure [4]. - The overall gross margin for ZTE decreased to 25.85% in the third quarter, reflecting the pressure from declining high-margin business [4]. Group 4: Strategic Focus - ZTE is now focusing on growth in computing, digital energy, and terminal segments as part of its "second growth curve" strategy [5]. - The company acknowledges the urgency of transitioning from a full connectivity model to a "connectivity + computing" model in response to the AI-driven industrial revolution [6][7].