CMB International expects that the non-communication business of ZTE (00763) can maintain double-digit growth.
According to the intelligence and financial app, CMB International has released a research report stating that it maintains a "buy" rating on ZTE (00763), and the company's non-communication business is expected to maintain double-digit growth, offsetting the weakness of the communication business. The revenue forecast for the next two years is reduced by 3% and 2%, respectively, and the profit forecast is also lowered by 3% and 7% to reflect the decline in gross margin. The target price is accordingly lowered from HKD 27.4 to HKD 22.17.
The report states that the company's mid-term performance is mixed. In the first half of the year, revenue increased by 2.9% year-on-year to RMB 62.5 billion, and net profit increased by 4.8% year-on-year to RMB 5.7 billion. The bank pointed out that although the decline in capital expenditures by mainland telecom operators has had a negative impact on ZTE's business, the company's non-communication business still achieved double-digit year-on-year growth. In terms of the quarterly performance, revenue increased by 1.1% year-on-year, and net profit increased by 5.7% year-on-year. The gross margin fell to 39% due to unfavorable product mix, and the net margin continued to improve to 9.4%.
