In the first quarter of 2024, the company's revenue increased 4.9% year on year, achieving net profit of 2.74 billion yuan, up 3.7% year on year, and net profit without return to mother increased 7.9% year on year. The company accelerated its transformation to “connection+computing power”, government, enterprise and consumer businesses returned to a rapid growth path, and the company strengthened cooperation with operators in the low-altitude economy.
24Q1 operating data performed well
In the first quarter of 2024, the company achieved operating income of 30.58 billion yuan, up 4.9% year on year; realized net profit of 2.74 billion yuan, up 3.7% year on year and 84.6% month on month; net profit after deducting non-return to mother was 2.65 billion yuan, up 7.9% year on year.
The steady growth of the company's revenue is mainly due to the company's accelerated deployment of “connection+computing power”. At the same time, against the backdrop of growing pressure on the domestic operator market, the company increased its expansion of government, enterprise and consumer businesses, and the two business revenues returned to a rapid growth trajectory.
Profitability increased month-on-month. Q1 gross sales margin was 42.02%, +5.98pct month-on-month, and net sales margin was 9.03%, +4.77pct month-on-month.
The 24Q1 net operating cash flow of the company was 2.98 billion yuan, an increase of 28.3% over the previous year. The cash flow situation further improved, reflecting the company's good control over cash flow.
The cost side is stable and controllable. The 24Q1 sales/management/R&D expenses ratio was 6.7%/3.7%/20.9%, respectively, -0.8/-0.8/+0.49pct.
Accelerate transformation “connection+computing power”
Connectivity: The company continues to evolve around next-generation ICT technologies such as 5G-A, all-optical networks, and 6G. For 5G-A, the company continues to cultivate core technologies such as chips and algorithms, and is deeply involved in the formulation of global 5G-A standards, and has cooperated extensively with domestic operators to carry out commercial deployment in scenarios such as 10 gigabit experience, industrial field networks, REDCap, and ubiquitous intelligence, and further expand verification scenarios and use cases in the field of global sensing and NTN; in all-optical networks, the company seizes market opportunities such as gigabit optical access and 400G OTN optical transmission through self-developed chips and full-scenario solutions, and also launched the industry's first 800G pluggable solution.
Computing power field: The company has formed an integrated computing power system through network calculation and network forced computation. It has comprehensively deployed new technologies such as computing, intelligent computing, and large models, and has the ability to provide full-stack solutions such as hardware infrastructure, software platforms, large model capabilities, and industry AI application adaptation. ZTE has released products such as serial servers compatible with mainstream chips at home and abroad, nationally produced 100G and 200G network cards, high-performance storage, training and promotion all-in-one computers, and 400G/800G high-performance data center switches. At the same time, the company launched the Nebula Big Model, which combines self-development and ecological cooperation, and adopted the “1+N+X” strategy to improve internal R&D efficiency.
Lay out a low-altitude economy
The company strengthens cooperation with operators in the low-altitude economy. Recently, Zhejiang Mobile and ZTE completed the construction of a 5G-A integrated base station in the aviation town of Jiande, Hangzhou, and completed the first test flight sensing verification of an airport helicopter at home and abroad. ZTE and Jiangxi Mobile opened the province's first 5G-A integrated communication base station in the Ganzhou Low Altitude Economic Industrial Park and successfully connected with the Ganzhou Low Altitude Comprehensive Monitoring Platform business. Hebei Telecom and ZTE have completed technical verification of the sensing capability of the new 5G-A base station at Yuerong Park in Xiong'an. The networking verification achieved sensing of target objects such as drones. The maximum sensing range is over 1 km, and the sensing accuracy can reach the sub-meter level. We expect ZTE to continue to use its technological advantages to strengthen its business layout in the low-altitude economy.
Profit forecasting and valuation
We expect the company's net profit to be 10.62, 120.8, and 13.50 billion yuan respectively in 2024-2026, corresponding to the 24-26 PE multiples of 13, 11, and 10 times, respectively, to maintain a “buy” rating.
Risk warning
Carrier capital expenditure declined, government business development fell short of expectations, etc.