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].

Core Insights - On October 30, 2025, Alibaba-W (09988), SMIC (00981), and Tencent Holdings (00700) were the top three companies by trading volume in the southbound trading of the Stock Connect, with trading amounts of 6.451 billion, 5.219 billion, and 3.290 billion respectively [1][2] - In the southbound trading of the Shenzhen-Hong Kong Stock Connect, Alibaba-W (09988), SMIC (00981), and Xiaomi Group-W (01810) also ranked as the top three, with trading amounts of 4.611 billion, 3.820 billion, and 2.408 billion respectively [1][2] Southbound Trading Highlights - **Top Active Companies in Southbound Trading (Shanghai-Hong Kong)** - Alibaba-W (09988): Trading amount of 6.451 billion, net buy of -0.386 billion - SMIC (00981): Trading amount of 5.219 billion, net buy of +0.563 billion - Tencent Holdings (00700): Trading amount of 3.290 billion, net buy of -0.310 billion - Meituan-W (03690): Trading amount of 3.203 billion, net buy of +0.535 billion - Xiaomi Group-W (01810): Trading amount of 3.070 billion, net buy of +0.456 billion [2] - **Top Active Companies in Southbound Trading (Shenzhen-Hong Kong)** - Alibaba-W (09988): Trading amount of 4.611 billion, net buy of +1.261 billion - SMIC (00981): Trading amount of 3.820 billion, net buy of -0.537 billion - Xiaomi Group-W (01810): Trading amount of 2.408 billion, net buy of -0.254 billion - Tencent Holdings (00700): Trading amount of 2.234 billion, net buy of +0.046 billion - Huahong Semiconductor (01347): Trading amount of 2.094 billion, net buy of +0.613 billion [2]

Group 1 - Southbound funds recorded a net purchase of 13.641 billion HKD today [1] - The top net purchases were in the following companies: Yingfu Fund (4.633 billion HKD), Alibaba-W (0.876 billion HKD), and Meituan-W (0.806 billion HKD) [1] - ZTE Corporation had the highest net sell amount, totaling 0.324 billion HKD [1]

Core Viewpoint - Jefferies has downgraded ZTE Corporation's target price to HKD 25.71, citing overvaluation and a significant miss in Q3 performance compared to market expectations [1] Financial Performance - ZTE's Q3 2025 revenue, core operating profit, and net profit saw year-on-year growth of 5%, but core operating profit and net profit dropped by 115% and 88% respectively, significantly underperforming market expectations [1] - Gross margin decreased from 40% to 26%, leading to a 33% decline in gross profit, attributed to delays in telecom equipment delivery and weak telecom demand [1] Valuation and Forecast - Following a 100% increase in stock price, ZTE is currently trading at a forecasted P/E ratio of 24x for 2025, with a projected compound annual growth rate (CAGR) of -6.5% for earnings per share [1] - Jefferies' net profit forecasts for 2026 and 2027 are 35% and 48% lower than market consensus, indicating potential risks for valuation adjustments [1] Market Outlook - The company anticipates an improvement in gross margin for Q4, but overall, there is a risk of double-digit declines in high-margin telecom revenue in 2025 due to further capital expenditure cuts by Chinese telecom operators [1] - New business areas such as servers and switches are not expected to provide sufficient offset to the declining telecom revenue [1]

Group 1 - BlackRock's stake in ZTE Corporation's H-shares decreased from 8.28% to 7.02% as of October 24 [1]

Market Overview - The Hong Kong stock market showed a mixed performance with the Hang Seng Index closing down 0.24% at 26,282.69, the Hang Seng China Enterprises Index down 0.31% at 9,346.86, and the Hang Seng Tech Index down 0.68% at 6,051.76 [1][2] - Southbound funds recorded significant net purchases exceeding 11 billion HKD, with net purchases of 6.612 billion HKD through the Shanghai-Hong Kong Stock Connect and 7.03 billion HKD through the Shenzhen-Hong Kong Stock Connect [2] Sector Performance - Large technology stocks exhibited divergent trends, with Baidu, Bilibili, and NetEase each falling over 2%, while Meituan rose over 2% [4][6] - The lithium battery sector performed strongly, with Ganfeng Lithium surging nearly 15% after reporting better-than-expected earnings [4][12] - Coal stocks, port and shipping stocks, photovoltaic stocks, nuclear power stocks, home appliance stocks, and building materials stocks were mostly active [4] Notable Stocks - Ganfeng Lithium reported a revenue of 14.625 billion CNY for the first three quarters of 2025, a year-on-year increase of 5.02%, and a net profit of 25.52 million CNY, recovering from a loss of 640 million CNY in the previous year [12] - In the healthcare sector, innovative drug stocks declined, with companies like Xiansheng Pharmaceutical and Innovent Biologics dropping over 4% [9] - Real estate stocks faced downward pressure, with China Overseas Macro Group and R&F Properties falling 5% [10] Commodity Performance - Gold and precious metals saw significant gains, with companies like Zijin Mining and China Silver Group rising over 8% [11] - The World Gold Council reported a 3% year-on-year increase in global gold demand for Q3 2025, reaching 1,313 tons, marking the highest quarterly demand on record [11] Economic Outlook - Morgan Asset Management indicated that a moderate expansion of the U.S. economy and gradually declining interest rates could benefit risk assets, particularly in the technology, communication services, and financial sectors [14] - The Federal Reserve's interest rate cuts are expected to enhance global liquidity, potentially supporting non-U.S. markets [14]

Core Viewpoint - ZTE Corporation is undergoing a critical transformation period, facing challenges in traditional operator business while experiencing strong growth in new business areas, particularly in computing power and enterprise services [5][6][7]. Financial Performance - For the first three quarters of 2025, ZTE achieved operating revenue of 100.52 billion yuan, a year-on-year increase of 11.63% [1]. - The net profit attributable to shareholders was 5.322 billion yuan, while the net profit after deducting non-recurring gains and losses was 3.879 billion yuan, reflecting a year-on-year decline of 43.77% [1]. - In Q3 2025, the company reported revenue of 28.967 billion yuan, a 5.11% increase year-on-year, but the net profit dropped by 87.84% to 264 million yuan [4]. Business Segments - The "second curve" business, represented by computing power, is rapidly growing, with revenue from this segment increasing by 180% year-on-year, accounting for 25% of total revenue [2]. - The enterprise business saw a significant growth of 130% year-on-year, with server and storage revenue up by 250% and data center product revenue up by 120% [2]. - Consumer business revenue remains stable, with home and personal business contributing 25% to total revenue [3]. Cost and Profitability Challenges - The company's operating costs reached 69.811 billion yuan, a year-on-year increase of 30.08%, primarily due to increased revenue scale and rising cost rates [4]. - The decline in operator network revenue, influenced by reduced investment in communication infrastructure by domestic operators, has led to pressure on gross margins [4]. Cash Flow - The net cash flow from operating activities for the first three quarters was 1.777 billion yuan, a significant decrease of 77.92% year-on-year, attributed to increased cash payments for goods and services [4].

Market Overview - The meeting between the Chinese and U.S. leaders has boosted market sentiment, leading to a collective rise in Hong Kong's three major indices, with the Hang Seng Index up by 0.54%, the National Index up by 0.53%, and the Hang Seng Tech Index up by 0.31% [1] Company Performance - Major technology stocks showed mixed performance, with Meituan rising by 4% and Tencent increasing by 2.4%, while Baidu, Xiaomi, and Kuaishou experienced declines [1] - ZTE Corporation's stock fell over 9% following its earnings report, marking it as the weakest performer in the telecommunications equipment sector [1] Sector Performance - The copper price reached a new high, and spot gold prices increased, leading to a rise in copper and gold stocks, which led the gains in the non-ferrous metal sector [1] - Coal, shipping, and photovoltaic stocks generally performed well, while the biopharmaceutical, domestic real estate, and gaming sectors were broadly sluggish [1]

Investment Rating - The investment rating for the company is "Buy" (maintained) [8] Core Views - The most challenging phase for the company may have passed, with optimism regarding the development of AI computing power [4] - The company's revenue for the first three quarters of 2025 reached 100.52 billion yuan, a year-on-year increase of 11.63%, while net profit attributable to shareholders decreased by 32.69% to 5.322 billion yuan [1][2] - The decline in domestic operators' capital expenditure has significantly impacted the company's performance, particularly in its network business, which accounted for 49% of revenue and had a gross margin of 53% in the first half of 2025 [1][3] Summary by Sections Operator Network - The domestic operator network market has seen a notable decline in capital expenditure, with a year-on-year decrease of 13.1% in Q3 2025 [3] - The pressure from declining capital expenditure is expected to ease, with projections indicating a decrease of approximately 9% for the full year 2025 [4] Computing Power Business - The computing power segment has experienced a significant year-on-year revenue growth of 180%, with server and storage revenue increasing by 250% [5] - The company has established close collaborations with major domestic internet companies, achieving large-scale commercial use of its intelligent computing servers [5] Home and Personal Business - The home and personal business segments have shown steady growth, with personal business revenue achieving double-digit growth [6] - The company has launched AI smartphones in collaboration with Doubao, integrating advanced AI capabilities into its products [6] Profit Forecast - The company is projected to achieve net profits of 7.6 billion yuan, 9 billion yuan, and 10.3 billion yuan for the years 2025, 2026, and 2027, respectively, with corresponding year-on-year growth rates of -9.8%, +19.0%, and +14.3% [13]

Core Insights - The article emphasizes the importance of implementing the spirit of the 20th Central Committee's Fourth Plenary Session, focusing on high-quality development and the construction of a modern industrial system [1][4] Group 1: Industrial Development - The city aims to strengthen the foundation of the real economy and accelerate high-level technological self-reliance, leading to new quality productivity [1] - The Beijing Economic-Technological Development Area is encouraged to leverage its resource endowments to create a hub for emerging and future industries [1][2] - The focus is on enhancing industrial development momentum through technological innovation, addressing key technological bottlenecks, and improving supply chain resilience [3] Group 2: 6G and AI Industries - The city is prioritizing the development of the 6G industry, with plans to accelerate the establishment of 6G laboratories and focus on core technologies [2] - The "Modular World" AI community is highlighted as a key area for gathering AI industries, driven by large models and data elements [2] - There is a call for continuous support for AI enterprises, fostering leading companies and unicorns in the sector [2][3] Group 3: Policy and Ecosystem Support - The article stresses the need for a robust industrial ecosystem, including the establishment of strong industrial platforms and the introduction of strategic projects [4] - Financial services are to be improved, with a focus on supporting early-stage investments in innovative projects [4] - The article advocates for optimizing the business environment and enhancing regional coordination to expand industrial development space [4]