In the first quarter of 2025, ZTE's revenue grew against the trend, but the decline in gross margin has become a concern.
Key points:
Strong revenue growth performance: in the first quarter, revenue reached 32.968 billion yuan, a year-on-year increase of 7.82%, indicating the company's main Business maintains steady growth.
Profitability is under pressure: net income attributable to the parent company was 2.453 billion yuan, down 10.50% year-on-year; the non-recurring net profit was 1.957 billion yuan, a significant year-on-year decline of 26.14%.
The decline in gross margin is obvious: the growth rate of the cost of goods sold far exceeds the revenue growth rate, with the cost of goods sold increasing by 22.13% year-on-year, while revenue only grew by 7.82%.Cash flow situation has worsened: the net cash flow from operating activities was 1.851 billion yuan, a year-on-year decrease of 37.93%, mainly due to increased cash paid for purchases.
Financial highlights: financial expenses turned from losses to profits, net interest income increased, and exchange rate fluctuations brought foreign exchange gains.
Future focus points: trends in gross margin changes, efficiency of research and development investment, inventory management, and market expansion situation.
Against the backdrop of global economic slowdown and rising geopolitical risks, ZTE's performance in the first quarter of 2025 shows a contradictory pattern of "revenue growth, profit decline," raising market concerns about the company's profitability and business quality.
Revenue grew against the trend, but profits faced significant pressure.
According to the latest Earnings Reports, ZTE achieved revenue of 32.968 billion yuan in the first quarter, a year-on-year increase of 7.82%, continuing its growth trend. However, the Net income attributable to ordinary shareholders of the listed company was 2.453 billion yuan, a year-on-year decline of 10.50%. More concerning is that the Net income after deducting non-recurring gains and losses was only 1.957 billion yuan, a significant year-on-year decline of 26.14%.
What worries investors the most is the noticeable decline in the company's gross margin. Data shows that ZTE's cost of goods sold in the first quarter reached 21.67 billion yuan, a year-on-year increase of 22.13%, far exceeding the revenue growth rate of 7.82%. This indicates that the company may face multiple pressures such as jiegoutiaozheng, intensified competition, or rising raw material costs.
There are clear signs of cash flow deterioration.
The net cash flow from operating activities in the first quarter was 1.851 billion yuan, a year-on-year decrease of 37.93%, mainly due to a significant increase in cash used for purchasing commodities and service payments. This data change reflects potential issues with the company’s operational efficiency or an increase in inventory reserves to meet future demand.
It is worth noting that the net cash flow from investing activities was -1.384 billion yuan, significantly improved compared to -15.061 billion yuan in the same period last year, mainly due to a decrease in net outflows from investments this period. This indicates that the company has adjusted its investment strategy and is more cautiously managing capital expenditures.
The highlights and concerns of the financial structure coexist.
In terms of financial performance, ZTE has shown some bullish signals: financial expenses amounted to -0.34 billion yuan, significantly improved from -0.064 billion yuan in the same period last year, primarily due to increased net interest income and exchange gains caused by exchange rate fluctuations.
At the same time, the company faces pressure in accounts receivable management, with credit impairment losses reaching 0.117 billion yuan, a year-on-year increase of 263.81%, indicating a possible deterioration in accounts receivable quality. However, the provision for inventory depreciation has decreased, and asset impairment losses decreased by 78.86% year-on-year, reflecting improvements in the company's inventory management.
Future development and key areas of focus.
In the face of the complex and changing challenges of the international political and economic environment, ZTE needs to focus on the following aspects while maintaining revenue growth:
Restoration of gross margin: How to enhance gross margin through product structure optimization and cost control is the company's most urgent task in the short term.
Improvement in R&D efficiency: R&D expenses in the first quarter reached 5.947 billion yuan, accounting for as much as 18% of revenue, necessitating attention to the efficiency of transforming R&D investment into market competitiveness.
Management of working capital: The decline in accounts receivable quality and reduced cash flow from operating activities (CFO) needs to raise alarms, and the company should strengthen customer credit management and inventory turnover efficiency.
Business structure upgrade: Focus on the company's layout and progress in emerging fields such as 5G, Cloud Computing, and the Industrial Internet.
In the context of increasingly fierce competition in the global Communications Equipment market, whether ZTE can effectively improve its profit margins and cash flow situation will be core Indicators that investors need to closely monitor in the future.
