ZTE Corporation [763.HK] 1H 217 Results In Line With Expectations. Maintain BUY. ZTE Corporation s (ZTE) 1H results are in line with previous guidance

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江准井
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1 中兴通讯 [763.HK] 17 年中期业绩符合预期 ; 维持买入评级中兴通讯 ( 中兴 ) 的中期业绩符合之前的指引运营商网络和消费者业务成为了公司的增长动力在 17 年上半年, 公司的政府和企业业务收入同比下滑, 主要是公司自 216 年第四季开始改变企业战略所致尽管市场关注中国电信运营商改变资本开支对中兴的影响, 但随着中兴持续在中国和海外市场取得份额, 公司的前景将维持正面我们认为, 由于中兴通讯涉足无线和有线业务, 这使公司可受益于市场对开发物联网的投资光纤网络的建设和 G 的普及由于公司的研发能力强大, 加上公司和海外电信运营商正展开更多讨论, 我们预计中兴通讯将取得更多全球份额另外, 公司开拓对非运营商市场 (IT 服务 ), 将为公司带来中长期的增长动力另一方面, 中兴通讯致力于投资 IoT G IC 设计软件定义网络和高端路由器等新技术, 这些都是电信行业中不断增长的领域考虑到物联网的开发 G 的普及和市场对光纤网络的持续投资, 我们继续对中兴通讯抱持乐观看法若中国移动公布推广物联网的细节中兴在发达市场取得突破有更多关于中国发展 G 的细节, 都会成为中兴的股价催化剂我们维持买入评级, 目标价为 26.2 港元 ( 基于 22 倍 217 年市盈率, 接近历史平均水平 ) 投资亮点 217 年上半年业绩亮点 : 中兴通讯 217 年中期收入为 4.16 亿元人民币, 同比增长 13.1%(16 年上半年为亿元人民币 ) 期内净利润为亿元人民币, 较 16 年同期的亿元人民币同比增长公司此次业绩符合之前的指引期内, 公司在中国市场的收入同比增长 16.2% 至亿元人民币海外市场收入同比增长 8.7% 至人民币亿元人民币各个业务板块方面, 运营商网络业务收入同比增长 12.6% 至亿元人民币 (216 年上半年为亿元人民币 ), 主要是由于中国市场的 4G 系统产品固网电话和承载系统以及欧洲市场的无线产品收入均同比增长所致消费者业务同比增长 24.1% 至亿元人民币 (216 年上半年为亿元人民币 ) 消费者业务强劲增长, 是由于国际市场手机产品和中国市场家用终端产品销售同比增长所致期内政府和企业业务同比下降 18.3%, 主要由于公司在 216 年第四季开始改变了企业策略所致期内公司的综合毛利率为 3.9%, 同比下降.8 个百分点 (216 年上半年为 31.8%) 毛利率下降是由于 :a) 政府和企业业务毛利率同比下滑, 以及低利润率的消费者业务的贡献增加比同业更可持续发展根据最新消息, 中兴通讯在 217 年上半年继续跑赢同业, 其中包括诺基亚和爱立信诺基亚和爱立信与 217 年上半年中国电信运营商业务同比下滑 ( 诺基亚 : 同比下降 1.7%, 爱立信下调同比增长 18%), 而中兴通讯仍呈正增长我们期待中国电信设备制造商在 G 时代获得更高的市场份额, 因为行业整合和持续不断的研发投入我们认为, 中兴通讯将具有比同业更可持续的发展由于行业发展带来新机遇 ( 如前 G 产品更为普及 G 开发大视频中国的宽带中国战略和物联网开发 ), 中兴通讯管理层对公司前景感到乐观在运营商网络方面, 中兴通讯将继续投资研发和进行技术建设, 并聚焦 G IOT 虚拟化云化大视频光传输和光接入等主要产品, 亦会提供创新解决方案, 同时提升公司为项目工作提供服务的能力, 以扩大其全球市场份额业绩的不明朗因素减少中兴通讯早前宣布, 拟以亿元人民币的价格出售努比亚 1.1% 的股权在出售完成后, 中兴通讯在努比亚的持股将由 6% 降至 49.9% 努比亚 216 年净亏损为 914 万元人民币, 该出售将使中兴通讯更专注于中兴通讯品牌手机以及增长潜力较大的设备业务我们预期公司将精简其业务组合, 以实现更高的股本回报率 Key Financials 主要财务指标 ( 百万元人民币 ) (in RMBm) 收入 E 218E Revenue 变动 ( 同比 %) 81, , , , ,2. 毛利润 Change (YoY %) Gross Profit 毛利润率 (%) 23, , , , ,421.9 Gross Margin % 净利润 Net Profit 2, ,27.9 (2,37.4) 4,19.3,221.8 净利润率 (%) Net Margin % (2.3) 每股收益 ( 基本 ) EPS (Basic) (.7) 变动 ( 同比 %) Change (YoY %) n.a. n.a. 1. 每股派息 DPS $.2 $.2 $. $.216 $.2 净资产收益率 (%) ROE (%) (8.4) 股息收益率 (%) Dividend Yield (%) 市盈率 ( 倍 ) PER (x) (3.9) 市净率 ( 倍 ) PBR (x) FCF 自由现金流收益率 Yield (%) (%) 1.7% 3.37%.3% -7.41% -2.93% TMT 行业硬件买入收盘价 : 19. 港元 (217 年 8 月 24 日 ) 目标价 : 26.2 港元 (+36.%) 股价表现 217 年 8 月 2 日 (HK$) Aug16 Oct16 Dec16 Feb17 Apr17 Jun17 Turnover (RHS) Price (LHS) (HK$ million) 来源 : 彭博市值億美元已发行股数 412. 億股核数师 Ernst & Young 自由流通量 1% 2 周交易区间港元三个月日均成交量 2,2 萬美元主要股东深圳市中兴新通讯设备有限公司 (3.8%) 来源 : 彭博, 公司布家杰, CFA 高级分析员 (82) markpo@chinastock.com.hk 王志文, CFA 研究部主管 (82) cmwong@chinastock.com.hk Capex 资本开支 ((m) 百万元 ) (1,77.1) (1,696.3) (1,86.9) (2,2.) (2,36.4) Free 每股自由现金流 cash flow per share.3.7. (1.4) (.6) Net Gearing (%) 净负债比率 (%) 来源 : 彭博, 中国银河国际证券研究部 1

2 ZTE Corporation [763.HK] 1H 217 Results In Line With Expectations. Maintain BUY. ZTE Corporation s (ZTE) 1H results are in line with previous guidance. Carrier networks and consumer business are the growth drivers for the Company. The YoY decline in turnover in government and corporate business in 1H 217 was a result of a change in ZTE s corporate strategy since Q Despite concerns about CAPEX by telecom operators in China, ZTE s outlook will be supported by gaining market share in both China and overseas markets. We maintain the view that ZTE s exposure to both wireless and wired enables the Company to benefit from investment in IoT development, optical fibre network construction and G migration. We also expect ZTE to gain global market share, given its strong R&D capability and more discussion with overseas telecom operators. The expansion to non-operator business (IT services) is a medium-long-term growth strategy for the Company. ZTE is committed to investing in new technologies, such as IoT, G, IC design, software-defined networks and high-end routers, which are growing areas in the telecommunications industry. We continue to take a more positive stance on ZTE, given IoT development, G migration and continuous investment in optical fibre networks. Share price catalysts include details on China Mobile s IoT network roll-out, a breakthrough in developed markets, and details on G development in China. We maintain our BUY rating with a target price of HK$26.2 (based on 22x 217E PER, in line with its historical average ). Investment Highlights 1H 217 results highlights. ZTE reported turnover of RMB4,1.6m in 1H 217, up 13.1% YoY from RMB47,77.3m in 1H 216. ZTE reported a net profit of RMB2,292.9 in 1H 217, up 19.8% YoY from RMB1,766.4m in 1H 216. ZTE s 1H 217 results are in line with previous guidance. Turnover in the China market increased 16.2% YoY to RMB32,319.m in 1H 217. Turnover in overseas markets increased 8.7% YoY to RMB21,691.6m in 1H 217. Regarding the business segment, carrier network business reported YoY turnover growth of 12.6% from RMB28,73m in 1H 216 to RMB32,31m in 1H 217, which was mainly due to YoY growth in sales of 4G system products, fixed-line and bearer systems in the China market, and wireless products in the European market. Consumer business reported YoY growth of 24.1%, from RMB14,41m in 1H 216 to RMB17,894m in 1H 217. The strong growth in its consumer business is a result of YoY growth in sales of handset products in the international market and home terminal products in the China market. ZTE s government and corporate business registered a YoY decline of 18.3% in 1H 217, which was mainly due to a change in corporate strategy since Q ZTE s blended gross margin was 3.9% in 1H 217, down.8ppt YoY from 31.8% in 1H 216. The decline in gross profit margin was a result of a) a YoY decline in gross margin of government and corporate business, and an increasing contribution from lower-margin consumer business. More sustainable development than its peers. Based on the latest information, ZTE continues to outperform its peers, including Nokia and Ericsson, in 1H 217. Both Nokia and Ericsson reported a YoY decline in business with Chinese telecom operators in 1H 217 (Nokia s: down 1.7% YoY, Ericsson: down 18% YoY), while ZTE still reported positive growth. We expect the Chinese telecommunications equipment makers to grab an even higher market share in the G era, given industry consolidation and continuous investment in R&D. We believe that ZTE will have more sustainable development than its peers. ZTE management is positive on the outlook for the Company, given new opportunities from industry development, such as more extensive application of Pre-G products, G development, big video, the Broadband China Strategy and IoT development. In connection with carrier networks, ZTE will continue its R&D investment and technology build-up, with a strong focus on principal products in G, IOT, virtualisation, cloudification, big video, optical transmission and optical access, offering innovative solutions while enhancing its ability in project work servicing in a bid to enlarge its global market share. Less swing factor in results. ZTE announced earlier that the it will sell 1.1% of its equity interest in Nubia Technology Limited for a consideration of RMB727.2m. After completion of the disposal, ZTE s stake in Nubia Technology Limited will be reduced from 6% to 49.9%. Nubia Technology Limited reported a net loss of RMB91.4m in 216. The disposal will enable ZTE to focus more on ZTE brand handsets and on the equipment business, which offers higher growth potential. We also expect ZTE to streamline its business portfolio to achieve higher ROE. Key Financials (in RMBm) E 218E Revenue 81, , , , ,2. Change (YoY %) Gross Profit 23, , , , ,421.9 Gross Margin % Net Profit 2, ,27.9 (2,37.4) 4,19.3,221.8 Net Margin % (2.3) EPS (Basic) (.7) Change (YoY %) n.a. n.a. 1. DPS $.2 $.2 $. $.216 $.2 Mark Po, CFA Senior Analyst (82) markpo@chinastock.com.hk Wong Chi Man, CFA Head of Research (82) TMT Sector Hardware BUY Close: HK$19. (Aug 24, 217) Target Price: HK$26.2 (+36.%) Share Price Performance (HK$) Source: Bloomberg. Market Cap cmwong@chinastock.com.hk US$13,629m Shares Outstanding 41,2m Auditor Ernst & Young Free Float-H Shares 1% 2W range 3M average daily T/O Major Shareholding Source: Bloomberg, Company data August 2, 217 Aug16 Oct16 Dec16 Feb17 Apr17 Jun17 Turnover (RHS) Price (LHS) (HK$ million) HK$ US$22.m Zhongxingxin (3.8%) ROE (%) (8.4) Dividend Yield (%) PER (x) (3.9) PBR (x) FCF Yield (%) 1.7% 3.37%.3% -7.41% -2.93% Capex (m) (1,77.1) (1,696.3) (1,86.9) (2,2.) (2,36.4) Free cash flow per share.3.7. (1.4) (.6) Net Gearing (%) Source: Bloomberg, CGIS Research, 2

3 Figure 1: Earnings projection Income Statement (RMBm) FY214 FY21 FY216 FY217F FY218F Cash Flow Statement (RMBm) FY214 FY21 FY216 FY217F FY218F Revenue 81,471 1,186 11, , ,2 Net Income 4,719 4,839 (417) 6,668 7,646 Growth yoy% 8.3% 23.% 1.% 11.7% 9.2% Depreciation & Amort ,61 1,14 1,26 1,414 Gross Profit 23,712 29,93 29,624 33,347 36,422 Change in Working Capital (3,6) (1,49) 1,16 (11,92) (9,9) Growth yoy% 1.9% 22.7% 1.8% 12.6% 9.2% Cash from Ops. 2,13 4,4 1,893 (3,996) (3) Selling General & Admin Exp. (21,38) (26,66) (28,116) (3,12) (32,78) Capital Expenditure (1,77) (1,696) (1,866) (2,3) (2,36) Others Operating Expenses/Items 2,4 2,42 (1,92) 3,833 3,932 Sale of Property, Plant, and Equipment Operating Income 4,719 4,839 (417) 6,668 7,646 Change in Investing Acitivities (94) 3,92,32 4,266 6,389 Growth yoy% n.a. 2.% (18.6%) (1,699%) 14.7% Cash from Investing (2,22) 2,229 3,166 2,214 4,28 Interest Expense (1,62) (1,269) (1,16) (1,434) (1,42) Net increase in bank borrowings (1,31) 2,64 (79) 2,31 2,19 Interest and Invest. Income Income/(Loss) from Affiliates (3.) Issuance of Common Stock Other Non-Operating Inc. (Exp.) Common Dividends Paid (138) (688) (1,38) (94) Impairment of Goodwill Special Dividend Paid Gain (Loss) On Sale Of Invest Other Financing Activities (1,61) (1,139) (1,9) (1,41) (1,72) Gain (Loss) On Sale Of Assets Cash from Financing (3,99) 814 (2,842) 886 (47) Income Tax Expense (81) (63) (64) (786) (99) Minority Int. in Earnings (94) (32) (9) (749) (866) Net Change in Cash (2,991) 7,448 2,217 (896) 3,41 Net Income 2,634 3,28 (2,37) 4,19,222 Growth yoy% 436% 21.8% (173.%) (291.7%) 1.% Balance Sheet (RMBm) FY214 FY21 FY216 FY217F FY218F Ratios FY214 FY21 FY216 FY217F FY218F ASSETS Sources: Company, CGIS Research Profitability Cash And Equivalents 17,23 26,617 3,24 3,69 33,382 Return on Assets % 2.% 2.7% (1.8%) 3.1% 3.3% Receivables 34,123 36,19 41,798 46,76 1,13 Return on Capital % 7.9% 8.1% (2.4%) 11.7% 12.4% Inventory 19,92 19,732 26,811 29,99 32,721 Return on Equity % 11.1% 11.8% (8.4%) 17.2% 18.% Other Current Assets 1,34 16,646 13,99 1,287 13,796 Total Current Assets 86,29 99,14 112,82 122,647 13,912 Margin Analysis Net Property, Plant & Equipment 7,664 8,3 9,12 9,88 1,7 Gross Margin % 29.1% 29.% 29.3% 29.% 29.% Long-term Investments SG&A Margin % 1.4% 14.4% 1.2% 1.4% 1.4% Other Intangibles EBIT Margin % 6.3%.%.3% 6.6% 6.9% Deferred Tax Assets, LT EBITDA Margin % 7.% 6.6% 1.% 7.7% 8.% Other Long-Term Assets 16,3 17,274 19,748 2,36 21,327 Net Income Margin % 3.2% 3.2% (2.3%) 4.% 4.2% Goodwill Accounts Receivable Long-Term Asset Turnover Total Long Term Assets 23,964 2,74 28,76 3,164 32,82 Total Asset Turnover.7x.8x.7x.7x.8x Total Assets 11,2 124,88 141,62 12, ,994 Fixed Asset Turnover 3.4x 3.9x 3.x 3.8x 3.9x Accounts Receivable Turnover 2.6x 2.9x 2.6x 2.6x 2.x LIABILITIES & EQUITY Inventory Turnover 4.2x.1x 3.8x 3.8x 3.8x Accounts Payable 4,224 48,99 6,684 73,398 8,166 Accrued Exp Liquidity Short-term Borrowings 2,348 17,799 17,984 2,96 21,9 Current Ratio 1.2x 1.2x 1.4x 1.2x 1.2x Curr. Port. of LT Debt Quick Ratio.7x.6x.8x.7x.6x Curr. Income Taxes Payable Avg. Days Sales Out Unearned Revenue, Current Avg. Days Inventory Out Other Current Liabilities 4,393 4,93 7,846 8,213 4,342 Avg. Days Payable Out Total Current Liabilities 69,96 71,332 91,14 11,77 16,47 Avg. Cash Conversion Cycle Long-Term Debt 1,4 6,16,18,18,18 Net Debt to Equity 9% 22% 8% 14% 1% Def. Tax Liability, Non-Curr. Other Non-Current Liabilities 3,97 3,891 3,99 4,66 4,996 Growth Over Prior Year Total Liabilities 83,962 81,239 1,23 111, ,471 Total Revenue 8.3% 23.% 1.% 11.7% 9.2% Common Stock 3,438 4,11 4,18 4,18 4,18 Net Income 436.4% 21.8% (173.%) (291.7%) 1.% Additional Paid In Capital Payout Ratio % 26.1% 32.1%.% 2.% 2.% Retained Earnings 21,441 2,9 22,217 21,98 26,86 Treasury Stock Comprehensive Inc. and Other Minority Interest 1, , ,638. 1, ,22. Total Equity 26,293 43,349 41,39 41,48 46,23 Total Liabilities And Equity 11,2 124,88 141,62 12, ,994 3

4 Oct-9 Feb-1 May-1 Aug-1 Nov-1 Mar-11 Jun-11 Sep-11 Dec-11 Apr-12 Jul-12 Oct-12 Jan-13 May-13 Aug-13 Nov-13 Mar-14 Jun-14 Sep-14 Dec-14 Apr-1 Jul-1 Oct-1 Jan-16 May-16 Aug-16 Nov-16 Feb-17 Jun-17 Figure 2: ZTE s PER trend HKD 6 36x 29x x 1x 2 8x 1 Sources: Bloomberg, CGIS Research estimates 4

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