ZTE Shares Rise After First-Quarter Net Profit Beat Expectations

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By Yifan Wang

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ZTE Corp.’s shares jumped in Hong Kong and China after the Chinese telecommunications equipment maker’s first-quarter net profit beat expectations.

ZTE’s Hong Kong-listed stock gained as much as 8.7% to 16.44 Hong Kong dollars (US$2.09) by the midday trading break, while its Shenzhen-traded shares were up 6.1%.

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The upturn, in line with a broad recovery in China and Hong Kong equities on Tuesday, came after ZTE said its first-quarter net profit rose 1.6% to almost 2.22 billion yuan ($338.4 million), beating market expectations according to brokerages including Jefferies, Shengang Securities, Huaxi Securities and Huatai Securities.

Analysts attributed the earnings beat to solid improvement in gross-profit margins, thanks to easing competition for ZTE’s main telecom carrier business and the company’s continued efforts to rein in expenses. Gross profit margin was 37.8% in the quarter, up 2.3 percentage points 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 ZTE would achieve our gross profit margin forecast of 35.9% in 2022,” compared with 35.2% in 2021, they said in a research note.

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

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

During the March quarter, ZTE’s profit growth was dragged down by a higher base of comparison in the year-earlier period, when ZTE booked a substantial one-time gain from a stake sale. Excluding extraordinary items, net profit in the latest earnings period more than doubled.

Write to Yifan Wang at [email protected]

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Credit: www.marketwatch.com /

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