In the first quarter of 2024, ZTE achieved revenue of 30.578 billion yuan (+4.9% YoY), net profit to mother of 2,741 billion yuan (+3.7% YoY), after deducting non-net profit of 2.65 billion yuan (+7.9% YoY); net operating cash flow reached 2.98 billion yuan, an increase of 28.3% year on year.
Revenue grew steadily, with government, enterprise and consumer businesses all returning to a rapid growth trajectory. Affected by the overall domestic investment environment, operator business growth is under pressure. The company is speeding up the shift from full connectivity to “connection+computing power”; the international community continues to break through the big country's T and continue the growth trend. At the same time, the company has increased the expansion of government, enterprise and consumer businesses, and both business revenues have returned to a rapid growth trajectory.
In terms of cost, the company attaches importance to improving operating efficiency, and maintains a high level of investment in R&D. The company's gross profit margin for the first quarter of 2024 was 42.02%, down 2.47pct year on year. Mainly due to product restructuring, revenue from government enterprises and consumer businesses with relatively low gross margins grew rapidly. The sales cost rate, management cost rate, and R&D expense ratio were -0.8/-0.8/+0.5pct year-on-year, respectively. Sales expenses and management expenses decreased by 6.3%/13.7%, respectively, and management efficiency continued to improve; R&D investment continued to increase, with R&D expenses of 6.38 billion yuan in the first quarter, an increase of 7.5% over the previous year.
The company positions maintaining growth in 2024 as its top priority, and continues to strengthen the “connection+computing power” strategic direction.
(1) In the first curve business, which mainly focuses on “connectivity,” it maintains core competitiveness in the wireless and wired fields, and continues to evolve around next-generation ICT technologies such as 5G-A, all-optical networks, and 6G. For 5G-A, the company continues to invest more in core technologies such as chips and algorithms to participate in the formulation of global 5G-A standards; in all-optical networks, it seizes market opportunities such as the gigabit upgrade of optical access and 400G OTN for optical transmission, and launched the industry's first 800G pluggable solution. (2) In the second curve business represented by “computing power,” the company has released products such as serial servers compatible with mainstream domestic and foreign chips, and the company has released products such as serial servers compatible with mainstream chips at home and abroad, high-performance storage, training all-in-one computers, and 400G/800G high-performance data center switches through network calculation and network computation. (3) The company also proposed the “AI for All” concept in the terminal field, released the world's first 5G+AI naked eye 3D tablet, the Nubia Pad 3D II, and launched the dual-satellite dual-system 5G security flagship ZTE Axon 60 Ultra and the AI 5G FWA product G5 Ultra for the industry.
Risk warning: 5G development falls short of expectations; industrial digital demand is slowing down; computing network deployment falls short of expectations.
Investment advice: The company will accelerate its expansion to computing power in 2024, and the overall operation is steady and resilient. Maintaining the profit forecast, the company's 2024-2026 revenue is estimated to be 1271/1318/137.4 billion yuan, and net profit to mother is 103/110/11.5 billion yuan respectively. The PE corresponding to the current stock price is 13/12/12X, respectively, maintaining a “buy” rating.