CITIC International lowered ZTE's target price to 38.6 yuan, as changes in revenue composition put pressure on profits

CMB International Research Report indicates that ZTE Corporation (00763.HK) is expected to achieve a revenue growth of 10.4% year-on-year in 2025, reaching RMB 134 billion, which is 7.7% and 3.9% lower than the bank's and market expectations, respectively. Net profit is projected to decline by 33.3% year-on-year to RMB 5.6 billion, which is 30% and 24% lower than the bank's and market expectations, respectively. Gross margin is expected to narrow by 7.7 percentage points year-on-year to 30.3%, mainly due to the increased sales proportion from enterprise and government business.

In the fourth quarter alone, revenue is expected to be RMB 33.3 billion, growing 6.8% year-on-year and 15.2% quarter-on-quarter; net profit is expected to be RMB 296 million, down 42.9% year-on-year but up 11.9% quarter-on-quarter.

Looking ahead, the bank maintains a positive outlook on revenue growth due to the continued expansion of server sales to enterprise and government clients, while the operator business is expected to remain roughly flat amid soft capital expenditure from domestic telecom operators. However, changes in the revenue mix may continue to pressure profit margins. The bank maintains a "Buy" rating, with the target price adjusted from HKD 42 to HKD 38.6