ZTE (000063): Turning losses into profit in the first three quarters of 19

Summary and recommendations: The company issued a 19th and 3rd quarter results announcement to achieve revenue of 642.

4 billion, a year-on-year increase of +9.

32%; net profit attributable to mother is 41.

2.8 billion, net profit after returning to mother 7.

One billion US dollars, turned a year into profit, EPS is 0.

98 yuan.

Among them, the third quarter achieved revenue of 196.

3.1 billion, a year-on-year increase of +1.

55%; net profit attributable to mother is 26.

5.7 billion yuan, a year-on-year increase of +370.

74%, the performance is near the median of the forecast range in line with expectations.

In addition, the company released its 2019 annual performance forecast, which is expected to achieve net profit attributable to mothers of RMB 4.3-5.3 billion, of which net profit attributable to mothers is 1.

72-11.

7.2 billion US dollars, previously turned a profit.

5G has begun large-scale commercialization this year. The company is one of the world’s major communications major equipment manufacturers and will obviously benefit from 5G investment and construction.

The company’s performance continues to improve, and maintains a “Buy” rating.

In the first three quarters of 2019, the company’s performance continued to improve, and its business gradually returned to track: in the first three quarters of 19, revenue increased by 9%.

32% to 642.

40 million, we think is mainly driven by the rapid growth of operator business and government and business revenue.

Net profit attributable to mother is 41.

At 28 ppm, the company realized a year of losses, which was mainly due to the company’s transfer of land use rights to Vanke to confirm related benefits26.

87 trillion.

In a single quarter, 3Q’s revenue growth rate was 1.

55%, we think that the current 5G construction is still in the growth period, the company’s related business has not yet started, and the release of performance takes time; 3Q net profit after deduction is 0.

9.8 billion, down 18 a year.

6%, mainly due to the increase in profits during the period resulting in increased expenses and minority shareholders’ profits and losses.

The company’s business is gradually on track, and its performance has gradually recovered to the level of 2017.

In addition, the company’s 3Q net cash flow from operating activities was 29.

05 ppm, which has been normalized since the fourth quarter of last year and gradually increased, indicating that the company’s cash flow situation has continued to improve.

The gross profit margin was flat in the third quarter, and the expense ratio decreased. In terms of gross profit margin, the company’s comprehensive gross profit margin in the third quarter of 2019 was 36.

46%, basically the same every year.

In terms of expense ratio, 3Q’s overall expense ratio fell by 1.

27 up to 27.

57%, of which the sales expense ratio fell by 1.

41 up to 8.

48%; management expense ratio increased by 2.

19 up to 5.

00%, mainly due to the increase in the cost of legal affairs; the rate of research and development expenses fell 3.21 up to 14.

71%; financial expense ratio increased by 1.

16 excellent to -0.

62%, mainly due to the decrease in exchange gains due to exchange rate fluctuations.

The company’s cost management and control capabilities have been improved, and the cost end has been gradually optimized.

5G construction is rapidly advancing the continuous layout, and the progress is significant: at the end of September 2019, the company won 35 5G commercial contracts around the world and launched 5G deep cooperation with 60 operators worldwide; 5G bearer end-to-end products were gradually delivered to 20,000; 5G end-to-end commercial products and solutions, full series of NR products to achieve full overlap, full scene coverage; 5G NSA & SA dual-mode base station supports flexible selection and smooth layout of operator network architecture.

ZTE’s Axon 10 Pro 5G versions have been released globally, and 5G indoor routers have been officially delivered to businesses in multiple markets around the world.

Key chip design standards, the company’s next-generation 5G wireless system chip and bearer switching network chip, its performance has been verified in field tests.

In addition, as of June 15, the company submitted 1,424 3GPP 5G SEPs (standard essential patents), ranking among the top three in the world.

The company continued to make arrangements in various fields and made significant progress.

Profit forecast: 5G network construction has been launched, driving the prosperity of the communications industry, and the company, as the world’s leading communications master equipment manufacturer, will be the first to make a profit.

We expect the company to achieve a net profit of 48 in 2019, 2020 and 2021.

23, 61.

86 and 夜来香体验网 80.

830,000 yuan, +169 compared with the same period last year.

07%, +28.

25% and +30.

67%, equivalent to 1, respectively.

14.1.

46 and 1.

91 yuan, the current corresponding PE of A shares is 30, 23 and 18 times.

Maintain “Buy” rating.
Risk reminders: 1. The 5G investment progress is less than expected; 2. The intensified competition in the communications industry has caused the company’s gross profit margin and market share to decline; 3. The Sino-US trade friction has escalated.