Jinwu Financial News | Goldman Sachs reports that ZTE (00763)'s revenue is expected to be 35 billion yuan in 2024, the same as the previous year, but a 27% month-on-month increase. Domestic telecom network demand was affected by a slowdown in the capital expenditure cycle, while overseas business achieved double-digit year-on-year growth in the first three quarters of 2024. Enterprise ICT and consumer electronics businesses are key growth drivers, and are expected to account for 17% and 25% of revenue in 2024, respectively. Due to the increase in the share of non-telecommunications businesses, gross margin is expected to drop slightly to 38.6% month-on-month in 2024, but overall net profit is expected to increase 52% year over year to 2.3 billion yuan.
Goldman Sachs believes that the telecommunications industry is in the middle and late stages of the 5G investment cycle. The slowdown in China Telecom's infrastructure capital expenditure has limited ZTE's core business, but at the same time, the development of artificial intelligence has brought new opportunities to the industry. With its capabilities in AI computing solutions, application development, and equipment innovation, ZTE is expected to seize opportunities for growing AI demand in the enterprise and consumer electronics fields, but it is also facing challenges such as increased market competition and accelerated technological iteration.
Based on a valuation of 11 times the expected price-earnings ratio in 2025, Goldman Sachs raised its 12-month target price for ZTE H shares from HK$22 to HK$25.2; the target price for A shares was raised to RMB 39.9 (the target price-earnings ratio for 2025 is 19 times, with a valuation premium of 69% over H shares, compared to 17 times previously). The “neutral” rating of ZTE (H Shares/A Shares) was maintained in line with the slowdown in telecom capital expenditure and the current valuation situation.
