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]
2023年利润率提高；预计2024年稳步增长