Hong Kong Stocks Move | ZTE drops over 8%, interim gross profit margin declines significantly

On September 2, ZTE Corporation's intraday share price dropped by over 8%. According to reports, ZTE Corporation's revenue in the first half of the year reached 71.553 billions yuan, a year-on-year increase of 14.51%; net profit was 5.058 billions yuan, a year-on-year decrease of 11.77%. The gross profit margin was 32.45%, down 7.99% year-on-year.

Jefferies released a research report stating that ZTE Corporation's share price has risen by about 52% in the past three months, driven by expectations of growth in artificial intelligence and ASIC chips. However, the weaker-than-expected second-quarter results indicate that the market is overly optimistic. Currently, Jefferies' net profit forecasts for ZTE for this year and next year are 26% and 31% lower than market consensus, respectively. The 22x P/E valuation is not attractive compared to the negative net profit growth expected over the next three years. The investment rating has been downgraded from "Hold" to "Underperform," and the target price has been raised to HKD 27.27.

Nomura published a research report stating that the group maintains effective expense management, especially in R&D, partially offsetting the impact of the decline in gross profit margin. The bank believes that the group will continue to face margin pressure in the second half of the year, but will gradually recover starting next year, benefiting from better cost optimization. The bank raised its revenue forecast for ZTE from 2025 to 2027 by 8.5% to 10%, reflecting increased demand for AI servers, but lowered its profit forecast for the same period by 4% to 21% to reflect margin dilution.