2025-09-04 15:08Summary of ZTE Corp (763 HK) Conference Call Company Overview - Company: ZTE Corp (763 HK) - Sector: Telecommunications - Current Price: HKD 36.22 (as of September 1, 2025) - Target Price: HKD 39.00, implying a 7.7% upside [4][22] Key Financial Highlights - 2Q25 Results: - Revenue growth accelerated to 21% y-y (1Q25: +7.8% y-y) - Earnings declined by 13% y-y (1Q25: -10.5% y-y) [1][14] - Revenue Breakdown: - Carrier network revenue declined by 6% y-y in 1H25 - Enterprise segment revenue grew by 110% y-y, driven by AI server shipments [1][2] - Gross Profit Margin (GPM): - GPM declined by 8.0pp y-y to 32.5% in 1H25 and 8.1pp y-y to 30.9% in 2Q25 [1][14] - Cost Control: - R&D expenses decreased by 2.7% y-y in 1H25 and 2.5% y-y in 2Q24, partially offsetting GPM decline [1] Revenue and Earnings Forecasts - Revised Revenue Forecasts: - FY25F-27F revenue forecasts raised by 8.5-10.0% due to stronger AI server demand [1][13] - Earnings Adjustments: - FY25F-27F earnings forecasts cut by 4-21% due to margin dilution [1][13] - Future Revenue Contribution: - Enterprise/government segment expected to contribute 34% of total revenue by 2027F with a 43% revenue CAGR from FY24-27F [2] Market Dynamics - Carrier Business Challenges: - Continued downcycle in 5G infrastructure spending in China impacting growth [2][18] - AI Server Demand: - Strong demand driven by accelerated AI investments from domestic tech players [2] Valuation and Risks - Valuation Methodology: - Target price based on 19x FY26F EPS of CNY1.88, aligned with FY25-27F earnings CAGR [11][18] - Risks: - Downside Risks: Slower-than-expected 5G spending, US-China trade tensions - Upside Risks: Faster recovery in telecom demand, better margin improvements in enterprise and consumer segments [11][18] Additional Insights - Cash Flow and Debt: - Ending cash projected to increase from CNY 43.9 billion in FY24 to CNY 566.6 billion in FY27 [10] - Net debt/equity ratio expected to rise to 30.9% by FY27 [10] - Market Capitalization: Approximately USD 19.45 billion [4][8] Conclusion ZTE Corp is navigating a challenging telecom environment with a strong focus on AI server growth. Despite margin pressures, the company is expected to benefit from increased demand in the enterprise segment, leading to revised revenue forecasts. The stock maintains a Neutral rating with a target price reflecting potential upside.