ZTE-Improved margins in 2023; expect steady growth in 2024

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]