ZTE (000063): Performance Meets Expectations, Focuses on 5G Research, Promotes Rapid Recovery of Cash Flow

ZTE (000063): Performance Meets Expectations, Focuses on 5G Research, Promotes Rapid Recovery of Cash Flow

Event: The company released the first quarter of 2019 report on the evening of April 29, and the company achieved operating income of 222 in the first quarter.

2 billion, a decline of 19 per year.

3%; net profit attributable to ordinary shareholders of listed companies.

6.3 billion, an increase of 116 per year.

0%; non-recurring losses attributable to shareholders of listed companies, net purity 1.

3.3 billion, an annual increase of 572.

2%; The company achieved EPS0 in the first quarter of 2019.

21 yuan, performance basically in line with expectations.

In addition, the company also announced the performance forecast for the first half of 2019. It is estimated that the net profit attributable to ordinary shareholders of listed companies will be 1.2-1.8 billion yuan, an increase of 115.

3% -123.

0%.

Comments: 1. The performance was in line with expectations. Financial and administrative expenses affected some of the current results. The company’s operating income for the first quarter of 2019 was 222.

2 billion, a decline of 19 per year.

3%; net profit attributable to ordinary shareholders of listed companies.

6.3 billion, an increase of 116 per year.

0%.

The company’s first-quarter performance forecast range is 800-120 million, an annual increase of 114.

8% -122.

2%, actual performance is in line with expectations.

In our judgment, the decline in revenue in the first quarter gradually decreased, and eventually the consumer business such as mobile phones was completely restored, and the main businesses such as operators have basically returned to normal levels; the significant increase in net profit was mainly due to the 1 billion yuan provided by the company in the same period last year.The size of the US dollar has resulted in large non-operating expenses.

In the first quarter, due to exchange rate fluctuations, exchange losses increased and expenditures increased, leading to financial expenses of 7.

7.7 billion, an estimated increase of 5 in the same period last year.

9.2 billion, the previous growth rate reached 317.

9%; the increase in legal personnel and transaction costs due to increased compliance requirements leads to management costs of 12.

600 million, an increase of 6 every year in the same period last year.

07 billion, the previous growth rate reached 93.

1%, but down 27 from the fourth quarter of last year.

9%.

Deduct non-net profit for the first quarter1.

3.3 billion, an annual increase of 572.

2%.

Non-recurring gains of approximately 7.

The main non-operating income of 300 million U.S. dollars, other income and changes in fair value, investment income and other impacts, including ZTE Venture Capital’s subordinate funds holding listed companies to participate in changes in market value, etc. brought about 2.

7.3 billion gains, while profitability in the same period last year; investment income, 3549 in the first quarter of 2019.

0 million yuan, of which associates and joint ventures -1.

6.6 billion.

The investment income is mainly due to the increase in benefits of the disposal of the equity of listed companies held by ZTE Ventures’ fund partnerships.

2. The management expense ratio has increased, and the company continues to focus on the gross profit margin of 5G research expenditures. The company’s comprehensive gross profit margin was 39 in the first quarter.97%, an increase of 7 per year.

06 foreign countries.

The increase in gross profit margin was due to the decline in the proportion of low gross profit margins in consumer business income affected by the embargo.

Affected by the company’s low-cost strategy for consumer terminals, the gross profit margin of the consumer business is only slightly higher than 10%, while the average gross profit margin of the operator’s network business is about 40%, and the increase in the proportion of the operator’s business revenue drives the company’s comprehensive gross profit margin.increase.

In terms of expenses, the selling expenses in the first quarter of 2019 exceeded the decrease by 29.

8%, sales expense ratio 7.

95%, down by 1 every year.

Two, we judge that the decrease in sales expenses was mainly due to the company’s business expansion is still in the recovery period and consumer business income fell; management expenses increased by 93.

1%, management fee rate 5.

68%, an increase of 3 per year.

For three amounts, the increase in administrative costs was mainly due to the increase in legal affairs costs and personnel costs; financial costs increased by 317.

9%, financial expense ratio 3.

50%, up 2 every year.

The eight samples were mainly due to the increase in exchange losses and the increase in interest expenses caused by exchange rate changes during the period.

R & D funding30.

9.3 billion, an annual increase of 14.

4%, R & D expense ratio 13.

93%, an increase of 4 per year.

1 average.

According to the EU’s industrial R & D investment rankings in 2018, ZTE’s R & D expansion ranks sixth in China and ranks top 76 among all companies worldwide.

Although it still differs from Huawei, which ranks first in the country, it ignores the effect of the company’s size.

7%) are similar.

It is expected that the company will further increase investment in 5G development, focusing on the development of 5G wireless, core network, bearer, plug-in, chip and other core areas, to maintain technological leadership in the 5G era.

3. The operating cash flow turned from negative to positive, and the company’s asset-liability ratio was 76 after the business resumed well.

41%, up 1 from the previous month.

89 shareholders, the company’s short-term debt increased by 80 compared with the end of last year.

6.3 billion, long-term debt increased by 0.

9.2 billion yuan, basically unchanged from the end of 2018.

Inventory 266.

7.3 billion, an increase of 16 over the end of last year.

6.2 billion, better than expected.

Monetary funds increased by 55 compared with the end of 2018.

67 trillion US dollars, holding nearly 29.9 billion monetary funds; operating cash flow in the first quarter of 201912.

6 billion yuan, an annual increase of 836.

2%, an increase of 25 over the fourth quarter of 2018.

1%.

Since the company resumed work in July 2018, cash flow has gradually picked up. It is expected that production will gradually resume and the company’s financial position will further improve.

4. New Opportunities Faced by Domestic and Overseas in the 5G Era In 19 years, the communications industry has ushered in an inflection point, the prosperity of 4G has increased, and 5G business is imminent. The company, as the top two main equipment supplier in China, will directly benefit.

According to the capital expenditure plans of the three major domestic operators, the capital expenditure budget for 2019 (including 5G capital expenditures) is approximately US $ 303 billion, an increase of 5 per year.

6%, of which the rapid growth of wireless-side capital expenditure has become the investment focus of operators in 2019. 5G investment is expected to be US $ 33 billion, and industry investment is picking up.China Unicom launched 41 in early 2019.

At the 60,000-station wireless network integration project, 900MHz was merged and re-cultivated. ZTE won the second bid in total.

ZTE is one of the integrated communication equipment suppliers in the Chinese telecommunications market, ranking second in the domestic market share, and has a long-term and stable cooperative relationship with the three major operators, making the industry’s inflection point appear. The company uses leading technology accumulation and product layout.It is expected to seize the potential of technological progress.

The overseas market is expected to continue to break through, consolidating ZTE’s global market share promotion logic.

In April 2019, ZTE and European telecom operator Orange realized the first 5G call using independent architecture (SA) in Valencia, including voice and data, and reached an important goal of 5G mobile network replacement.

This SA-based 5G call is the first demonstration of a 5G SA model in Europe. It is also the first time that ZTE has reached a cooperation in the 5G field with Orange, one of the four major operators in Europe.Enter the overseas operator supply system.

ZTE ‘s end-to-end products launched this time have good test results and are the basis for the deployment of independent 5G network architectures in the future. At the same time, it must break through 杭州桑拿 and break the market to destroy whether ZTE’s overseas expansion is blocked.

5. The industry’s gradual inflection point appears, and equipment leaders are expected to give play to their core advantages, maintain the “strongly recommended-A” rating for 4G network construction in 2019 to support performance, and the 5G cycle will gradually start to gradually change. As the top two major internal equipment vendors in terms of internal scale, company performanceIt is expected to re-enter the rising channel under the support of the domestic market.

The company’s overseas share continues to break through. ZTE is expected to achieve a share of more than 15% in the global communications equipment market in the 5G era, and achieve a competitive layout of mainstream operators worldwide.

The company’s new leadership continues to focus on the 5G and core operator markets, consolidates its technical strength, focuses on compliance and standardized management, and rides on the industry’s spring breeze. ZTE has entered a new era of development.

The company’s average PE (TTM, excluding negative values) in the last ten years is estimated to be 25.

14 times, the bottom interval is 10-20 times, and the top is about 40 times.

This year, the company is still expected to achieve a performance of 5 billion in terms of performance incentives. It is estimated that the net profit for 2019-2021 will be 51.

0 billion, 68.

400 million, 84.

US $ 300 million, corresponding to 27 PE in 2019-2021.

8X, 20.

7X and 16.

8 times. At present, the company estimates that it is still within a reasonable range of the historical average. Expansion of the 5G temporary license allocation is expected. The company is expected to expand the space and maintain the “strongly recommended-A” rating.Expectation of continued decline in operator capital expansion