2025-10-16 13:07Summary of ZTE Conference Call Company Overview - Company: ZTE Corporation (0763.HK) - Industry: Telecommunications and AI Infrastructure Key Points and Arguments Financial Performance - ZTE's server and storage revenues increased by 200% YoY in 1H25, with AI servers contributing 55% of total revenues [1][2] - Projected 3Q25 revenues are expected to grow 26% YoY, compared to 21% YoY in 2Q25, with a gross margin stabilizing at 31% [1] - Estimated net income for 3Q25 is projected to be Rmb2.4 billion, reflecting a 12% YoY growth [1] Market Position and Growth Drivers - ZTE is positioned as a major beneficiary in the telecom and enterprise AI data center market, supplying GPU servers, general servers, storage, and networking cards [2] - Recent procurement wins include: - Rmb3 billion general server procurement from ICBC [2] - Rmb1.9 billion PC server procurement from China Mobile [2] - Rmb5 billion AI inferencing server procurement from China Mobile [2] - The demand for AI and general computing infrastructure in China is increasing, with ZTE benefiting from comprehensive product lines and long-term customer relationships [2] Capital Expenditure Trends - Chinese Cloud Service Providers (CSPs) are expected to increase capital expenditures by 65% in 2025, 20% in 2026, and 9% in 2027 [2][8] Earnings Revisions - 2026-27E net income estimates have been revised up by 1% and 2% respectively due to higher revenue expectations [11] - Revenue estimates for 2026E and 2027E have been increased by 1% and 2% respectively [11] Valuation and Price Target - The 12-month target price for ZTE's H-shares has been raised by 14% to HK$43.6, reflecting a market re-rating of AI infrastructure players [1][12] - The target P/E multiple for H-shares is now 19.2x, up from 17.0x [11] - The 12-month target price for A-shares is raised by 13.6% to Rmb67.6 [12] Risks and Considerations - Key risks include faster or slower-than-expected demand in telecom infrastructure and potential non-operating gains or losses that could impact earnings estimates [22] Revenue Mix - ZTE is seeing an increasing contribution from non-telecom business segments, indicating diversification in revenue sources [13] Additional Important Information - The company maintains a Neutral rating due to fair valuation despite positive growth outlook [1] - The report emphasizes the importance of considering ZTE's normal earnings power without factoring in non-operating items, which have historically varied significantly [22]