ZTE’s (000063) 2019 Interim Review: The business level is on track and the scale of operations still needs to be optimized

ZTE’s (000063) 2019 Interim Review: The business level is on track and the scale of operations still needs to be optimized

The company’s 2019H1 achieved revenue / net profit attributable to mothers / net profit attributable to non-mothers 446.

09/14.

71/6.

1.2 billion, +13 a year.

12/118.

80/125.

73%.

It is expected that the net profit attributable to the mother in the first three quarters will be 3.8 to 4.6 billion, and then +152.

34?

163.

36%.

The gross profit of operators / government and corporate affairs has been significantly improved, the business scale is on track, and the gross profit is expected to increase steadily; the management / financial expenses are still high, the scope of operations needs to be optimized, and the expenses are expected to continue to improve.

The company continues 南宁桑拿 to expand investment in research and development, leading in end-to-end technology, and a 13 billion increase in audits has fully guaranteed the development of 5G projects, which is expected to benefit the long-term 5G cycle.

The EPS for 2019/20/21 is forecast to be 1.

15/1.

66/1.

80 yuan, maintain “Buy” rating.

The gross profit of operators / government enterprises increased significantly, and the business scale was on track.

The operator’s business resumed quickly: the 4G market share in the wireless field is stable, and the 5G layout has made progress; the wired field focuses on value customers and optimizes the market layout.

Business revenue in the first half of the year was more than ten years.

19% reached 324.

8.5 billion, slightly higher than the same period in 2017; gross profit margin increased by 3.
.

49 PCT to 44.

73%, the best level in the past ten years.

Continuous development of government and corporate affairs: The company focused on the development of key industries, focused on self-research and optimization of products, the market expansion of the public security / transportation / energy / financial industry was further improved, and business revenue decreased by +6.

02% to 47 ppm, the best level in the past three years; gross profit margin increased significantly8.

97 PCT to 36.

95%, more than the same period in 2017.

Consumer business strategy shrinks: After the “embargo event”, the company’s strategy focused on the main channel of the operator. The consumer business mainly focused on 5G to launch operator cooperation and multi-terminal layout, and business revenue was extended by -35.

41% to 74.

24 ppm, but gross margin improved significantly8.

10 PCT to 16.

48%.

Overall, the company’s revenue has grown steadily, gross profit margin increased by 9 PCTs, and gross profit grew slenderly by 46.

66% reached 174.

90,000 yuan, close to the same period in 2017.

We believe that in terms of business scale, the company has basically taken advantage of the impact of the “embargo incident”, and the gross profit margin is expected to continue to increase steadily.
Management / financial costs remain high and operating budgets need to be optimized.

Management costs: legal affairs costs and personnel costs increase, +86 per year.
74% reached 25.

3.9 billion, revenue +2.

24 PCT to 5.

69%; financial expenses: interest expenses from high financing increase, +688 per year.

94% reached 6.

6.3 billion with a revenue share of +1.

02PCT to 1.

49%; selling expenses: ten years -14.

88% to 40.

2.8 billion, with revenue accounting for -2.

97 PCT to 9.

02%.

Overall, the company’s three expense ratios increased slightly by zero.

29 PCT to 16.

20%. At the same time, the company disposes of the holders of listed companies such as Xinyisheng / Zhaoyi Innovation, etc.

1.5 billion investment income, driving operating profit +234.

24% to 23.

4.3 billion, net profit attributable to mother increased significantly.

In addition, the company foresees net profit attributable to mothers in Q3 201923.

29-31.

29 trillion, +312 for ten years.

65?
454.

38%, the total net profit attributable to the parent in the first three quarters was 3.8-4.6 billion, about +152.

34?163.

36%, the first is the Shenzhen Bay Super Headquarters project revenue (the company expects a total revenue of 3-3.3 billion, confirmed in 2019 is 2.6-2.9 billion).

We believe that in terms of operating scale, the company’s overall management / financial expenses are relatively high. In the future, legal affairs should be gradually resolved. The capital injection of the Shenzhen Bay project and the 13 billion yuan of approved value-added funds will continue to improve.

We will increase the number of audits to ensure high investment in research and development, and lead the technology to benefit the 5G cycle.

In the first half of the year, the company continued to increase investment in 5G research and development, and paid close attention to core device / chip self-development, with R & D costs exceeding +27.

89% to 64.

7.2 billion with a revenue share of +1.

68 PCT to 14.

51%, the highest level in the past ten years.

On August 22, the company will increase its audit by 13 billion yuan, and US $ 9.1 billion will be invested in “5G network distributed research and development”. The remaining US $ 3.9 billion will be used to supplement working capital, which fully guarantees high investment in future research and development.

At present, the company has more than 3,700 patents for its strategic layout of 5G, and only has end-to-end solution capabilities to fully prepare for business.

Wireless field: technical side, GaN high power amplifier / massive MIMO industry-leading, full-scenario / full-spectrum / multi-standard / multi-architecture coverage of products, it is expected that the third-generation self-developed 7nm 5G chip will be launched in the second half of the year;Operators cooperated to obtain 25 5G commercial contracts, NFV achieved 450+ business cases worldwide, and 10,000 massive MIMO base stations were delivered.

Bearer field: technical side, FlexE / network processor / switching all-in-one self-developed chip supports ultra-low latency and leading indicators; ultra-high-precision synchronization technical indicators reach the level of “perfect synchronization” defined by 3GPP; market side, 5G Flexhaul end-to-endEnd-products are commercially viable, and large-scale deployment has begun, and 30 5G live network experiments have been completed.
Industry application: The company can realize “SA / NSA + MEC + network slicing” boutique network for users, form 5G + solutions in nearly 20 fields such as Industrial Internet / Big Video / Internet of Vehicles / Finance Media and successfully implement 40+ demonstration projects, Strategic cooperation with 300+ industry customers / 200+ product providers.

Risk factors: Sino-U.S. Trade frictions continue to escalate; operators’ capital expenditures fall short of expectations; R & D technologies fall short of expectations; financial conditions continue to deteriorate; management costs continue to be high.

Investment suggestion: We are optimistic about the rapid expansion of the company’s business end and the continuous improvement of the expense side in the short term, and long-term optimism about the company’s global main equipment supplier leader and continuous research and development accumulated end-to-end technical advantages under the 5G cycle.

As the company’s one-time income has increased significantly, the EPS forecast for 2019 is raised to 1.
15 yuan (previous forecast was 0.

92 yuan), maintaining the EPS forecast for 2020/2021 to 1.

66/1.

80 yuan, maintain “Buy” rating.