ZTE shares rise after first-quarter net profit beat expectations

By Yifan Wang

Shares of ZTE Corp. surged in Hong Kong and China after the Chinese telecoms equipment maker’s first-quarter net profit beat expectations.

Shares of Hong Kong-listed ZTE gained as much as 8.7% at 16.44 Hong Kong dollars (US$2.09) over the lunch break, while its Shenzhen-traded shares were up 6, 1%.

The rally, in line with a broad rally in Chinese and Hong Kong stocks on Tuesday, came after ZTE reported its first-quarter net profit rose 1.6% to nearly 2.22 billion yuan (338, $4 million), exceeding market expectations according to brokerages such as Jefferies, Shengang Securities, Huaxi Securities and Huatai Securities.

Analysts attributed the profit advance to a solid improvement in gross profit margins, thanks to the easing of competition for ZTE’s main telecommunications operator and the company’s continued efforts to control its expenses. Gross profit margin was 37.8% in the quarter, up 2.3 percentage points year on year and up 6.8 percentage points from the fourth quarter of 2021, they noted.

Jefferies suggested the better margin trend could continue throughout the year. “We remain confident that ZTE will achieve our gross profit margin forecast of 35.9% in 2022,” up from 35.2% in 2021, they said in a research note.

Jefferies maintains its buy rating and price target of HK$28.20 for Hong Kong-listed stocks.

ZTE’s growing profitability “well demonstrates the company’s excellent management” and “good cost control,” Shengang Securities analysts added in a research note.

In the March quarter, ZTE’s earnings growth was held back by a high base of comparison compared to the year-ago period, when ZTE recorded a substantial one-time gain on a stake sale. Excluding exceptional items, net profit for the last period of results more than doubled.

Write to Yifan Wang at [email protected]

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