CMB International Slashes ZTE Price Target to HK$31, Citing Business Mix Shift Expected to Dilute Margins

Stock News
10/28

CMB International has released a research report stating that ZTE (00763) recorded third-quarter revenue growth of 34% year-on-year, though revenue declined 9.8% quarter-on-quarter, while net profit surged 394.5% year-on-year but fell 9.4% quarter-on-quarter. In light of the stronger revenue momentum and the ongoing dilution of profit margins caused by a short-term shift in business mix, the brokerage has lowered its price target from HK$35.5 to HK$31, while maintaining its "Buy" rating.

The report noted that ZTE's third-quarter net profit excluding non-recurring items rose 363.7% year-on-year but dropped 53.8% quarter-on-quarter, with gross margin improving 1.3 percentage points quarter-on-quarter to 24.6% during the period.

The report pointed out that computing power remains the primary growth driver, with computing power-related revenue growing over 70% year-on-year in the first nine months, rising to 38% of total revenue. Server and storage revenue grew more than 70%, while data center revenue increased by nearly 130%. The consumer business also served as an important growth pillar, with home and personal terminals combined accounting for 23% of revenue in the first nine months.

The brokerage raised its revenue forecasts for ZTE for the current and next year by 1.1% and 1% respectively, lowered its full-year net profit forecast for this year by 8.7%, and raised its net profit forecast for 2027 by 2.5%, leading to the aforementioned price target adjustment.

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