Jefferies has issued a research report stating that ZTE Corporation (00763) is overvalued, maintaining its "Underperform" rating. After a 100% surge in its stock price, ZTE now trades at 24 times its projected 2025 P/E ratio, with an implied negative 6.5% CAGR in earnings per share. The bank's 2026 and 2027 net profit forecasts are 35% and 48% below market consensus, respectively. Jefferies warns of potential valuation downside as investor optimism about new business segments may prove unrealistic. The target price has been revised down from HK$27.27 to HK$25.71.

Jefferies noted that ZTE's Q3 2025 results showed revenue growth of just 5% year-on-year, while core operating profit and net profit plunged 115% and 88%, respectively, significantly missing market expectations. Gross margin contracted from 40% to 26%, driving a 33% decline in gross profit. This was attributed to delayed telecom equipment deliveries, which deferred some carrier revenue from Q3 to Q4, coupled with weak telecom demand. Consequently, the bank expects Q4 margins to improve. However, overall profitability remains under pressure as Chinese telecom operators further cut capital expenditures, potentially leading to double-digit declines in high-margin telecom revenue for 2025. Jefferies sees limited offset from new business segments (servers, switches).