Zhi Tong Cai Jing·2025-10-30 09:44Core 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]