CMBI: Cuts ZTE Corporation (00763) Target Price to HK$31; Business Mix Shift Expected to Dilute Margins

CMBI issued a research report stating that ZTE Corporation (00763) recorded third-quarter revenue up 34% year-on-year and down 9.8% quarter-on-quarter, with net profit up 394.5% year-on-year and down 9.4% quarter-on-quarter. Citing stronger revenue momentum and the continued dilution of margins from a short-term business mix shift, the bank lowered its target price from HK$35.5 to HK$31, maintaining a "Buy" rating. The bank noted that ZTE Corporation's third-quarter non-GAAP net profit rose 363.7% year-on-year and fell 53.8% quarter-on-quarter, while gross margin improved 1.3 percentage points quarter-on-quarter to 24.6% during the period. The bank noted that computing power remains the primary growth driver, with computing power-related revenue growing more than 70% year-on-year in the first nine months and rising to 38% of total revenue. Server and storage revenue grew more than 70%, while data center revenue grew nearly 130%. The consumer business is also an important growth pillar, with home and personal terminals together accounting for 23% of first-nine-month revenue. The bank raised its revenue forecasts for ZTE Corporation for this year and next by 1.1% and 1%, respectively, cut its full-year net profit forecast for this year by 8.7%, and raised its 2027 net profit forecast by 2.5%, alongside the above target price adjustment.