2025-08-31 16:21Summary of ZTE (0763.HK) Conference Call Company Overview - Company: ZTE Corporation (0763.HK) - Market Cap: HK$184.6 billion / $23.7 billion - Enterprise Value: HK$202.2 billion / $25.9 billion - 12m Price Target: HK$33.50 (H-share), Rmb51.90 (A-share) [6][25][26] Key Financial Highlights - 2Q25 Revenue: Rmb39 billion, up 21% YoY and 17% QoQ, exceeding consensus estimates by 8% and 12% respectively [1][19] - Gross Margin: Declined by 3.4 percentage points QoQ and 8 percentage points YoY to 30.9% [1][19] - Operating Income: Rmb1.7 billion, down 36% YoY and 8% QoQ, significantly below consensus estimates [1][19] - Net Income: Rmb2.6 billion, down 13% YoY but up 6% QoQ, largely in line with expectations [1][19] Segment Performance - Telecom Equipment: Revenue decreased by 6% YoY due to slowing 5G investments in China [1][20] - Enterprise ICT: Achieved 110% YoY growth, driven by AI server and computing-related businesses [1][20] - Consumer Electronics: Grew by 8% YoY, supported by smartphone and cloud computer sales [1][20] Operational Insights - Gross Margin Decline: Attributed to changes in accounting methods and a higher revenue contribution from lower-margin server/storage segments [1][19] - Non-Operating Gains: Higher than expected, contributing positively to net income [1][19] Future Outlook - Revenue Forecasts: Revised upwards by 7% for 2025, 11% for 2026, and 13% for 2027, driven by AI trends boosting demand for computing infrastructures [21][22] - Earnings Revisions: Net income estimates for 2025-2027 revised down by 14%, 9%, and 3% respectively due to lower gross margins [21][22] - Target Price Adjustments: Target price for H-share raised by 14% to HK$33.50, based on a 15.0x 2026E P/E [25][36] Investment Considerations - Neutral Rating: Maintained due to the slowing capex cycle in the telecom sector, which may hinder overall growth [2][25] - Valuation Metrics: Current trading at 16x (H-share) and 21x (A-share) 2026E P/E, close to target multiples [2][25] - Risks: Include demand fluctuations in telecom infrastructure and potential non-operating gains/losses impacting earnings [37] Additional Insights - Market Position: ZTE is expanding into non-telecom businesses, including servers, storage, and consumer products [2][27] - Data Center Solutions: ZTE has completed over 450 data center projects globally, deploying more than 300,000 server racks [20][27] This summary encapsulates the key points from the conference call, highlighting ZTE's financial performance, segment growth, future outlook, and investment considerations.