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ZTE (000063): Business Recovery Goes on Track and 5G Starts Fully

2020-05-22

ZTE (000063): Business Recovery Goes on Track and 5G Starts Fully

Investment Highlights ZTE released its 2018 annual report with revenue of 855 during the period.

1.3 billion, down 21 a year.

41%, net profit attributable to mother may be 69.

83 trillion; at the same time, the first quarter of 2019 performance forecast is released, during which the profit is expected to reach 8 to 12 trillion, reaching 54 in the same period last year.

07 million yuan, turning losses into profits.

The preliminary results were in line with expectations. The company’s business has been fully recovered in the fourth quarter, and the first quarterly report shows that the business conditions are generally improving.

2018 preliminary forecast 69.

8.3 billion US dollars, located in the previous notice interval, financially has fully absorbed the distortion of the US last year’s name, the fourth quarter revenue of 267.

470,000 yuan, a net cash inflow of operating activities10.

07 billion, business scale and profitability have been completely restored.

The forecast range for the first quarter report is from 8 to 12 trillion, which is a longer and higher level, indicating that the company’s operating conditions are generally improving.

Operator business has become a strategic main channel, and the domestic market will provide major support.

Gross profit margin for Q4 was 34.

25%, compared with 32 in the first three quarters.

The level of 3% went up again, driving the overall comprehensive gross profit margin to 32.

91%, the highest budget, is mainly due to a significant contraction in consumer business, from 32 in 2017.

35% to 22 in 2018.

46%, a 45-year decline in size.

43%, greatly reducing the drag on gross profit margin; the operator market share is 66.

75%, has been completely rebuilt as the strategic focus of follow-up transformation; 天津夜网 the domestic market as a whole accounts for 63%.

7%, the proportion is increasing, which will become an important support for the company’s future development.

In overseas markets, there is still room for steady progress in matching with the mainstream needs of customers such as 4G network expansion and upgrade, and 5G orientation.

The initial high-level R & D investment is about to be transformed into 5G actual competition.

Under the adverse impact, the company insisted on R & D innovation as the core and increased R & D expenses109.

5.0 billion, with a revenue share of 12.

75%, still at the expected high level, and capitalized R & D investment20.

1.2 billion, an increase of 24 a year.

53%, with 129 previously invested in R & D.

1.6 billion, while reducing research and development personnel by 10.

27%, highlighting the improvement in expected 天津夜网 benefits, which fully guarantees the company’s strengths in 5G wireless, transmission, bearer, reception and chip core areas, which will help ZTE to realize the value of its early contributions in the 5G phase.

At the beginning of 5G, the company is expected to rely on the local domestic market and refocus in the next three years to achieve rapid growth in business scale and performance.

As a major contributor to global 5G technology and standard formulation, the company has deeply participated in global 5G cooperation and testing, accumulated patents and technologies, and the potential competition is obvious to all.

The 5G stage is bound to be one of the top five wireless master devices in the world.

We believe that the domestic 5G market investment scale will exceed half of the global, and ZTE’s domestic share is expected to be 30% to 40%. Depending on the local market, it can convert the global city share to 15% to 20%.

Coupled with the gradual focus on the continuation of the strategy, the business that is a drag on the overall performance is expected to be greatly reduced, and the actual performance of the company in the next few years is expected to exceed expectations.

The degree of compliance strategy evaluation and systematic construction are unprecedented, and follow-up should focus on the company’s implementation within the framework.

The company regards strengthening the three cornerstones of “compliance, talent, and internal control” as the basic strategic principles. The compliance and systematic construction is based on detailed plans required by the United States.Follow-up should focus on the implementation of key companies within the compliance framework.

Earnings forecast and estimation: We expect the company to achieve net profit attributable to mothers of 48 to 2021 respectively.04 billion, 60.

02 billion and 75.

17 trillion, the corresponding EPS is 1.

15.1.

43 and 1.

79 yuan.

Based on the top of the company and the 5G development space, the company will be given a price-earnings ratio of 30 times in 2020, and the target city size will be 180 billion.

Risk reminder events: Sino-US trade friction risk, operator input below expectations, customer credit risk, exchange rate risk, competition risk, technology risk.