Tianfeng Securities: Gave ZTE a buy rating with a target price of 38.04 yuan

2022-05-10Tianfeng Securities Co., Ltd. Tang Haiqing, Jiang Jiaxun conducted a study on ZTE and released a research report "Digital Economy Road Builder, ICT Leader Helps the Development of the Global Digital Economy", this report gives a buy rating to ZTE, believing that its target price is 38.04 yuan, the current stock price is 23.4 yuan, and the expected increase is 62.56%.

ZTE(000063)

The digital economy has become an important driving force for economic transformation and upgrading and sustainable development of enterprises, and ZTE uses ICT technology to help the development of the global digital economy.

As the key direction of the country's future economic transformation and upgrading, the digital economy and new infrastructure are frequently implemented, and important relevant policies are frequently implemented to promote the rapid maturity and development of all aspects of the industrial chain from network equipment, terminal hardware, and industry applications. As the world's leading ICT equipment manufacturer, ZTE has perfected its product matrix in the fields of network hardware, government-enterprise vertical industry applications, and consumer terminals, helping the digital economy and the construction of the underlying hardware of the new infrastructure, as well as the rapid landing of the upper-level applications, and is expected to usher in new opportunities for development.

Strategic transcendence period, the first curve is steady in progress, the second curve is accelerating to expand the new, the company focuses on the core product track, broadens the ICT strategic layout, and the three major business sectors go hand in hand.

2022 is the first year of the company's strategic transcendence period, and the company's first goal is to challenge "2-3 years to enter the global top 500". In order to achieve this goal, the company further consolidated the first curve business represented by traditional wireless and wired products, and rapidly pulled up the second curve business represented by servers and storage, terminals, digital energy, automotive electronics, etc., so as to achieve the three major businesses of operators, government and enterprises and consumers.

1) The first curve is stable and progressive, and strives to further increase the global market share, the company expects that the first curve business will still maintain a stable growth of more than 10% in the future and contribute to the scale of profits.

2) The second curve accelerates the expansion of innovation, focusing on servers and storage, terminals (including smart home terminals), 5G industry applications, automotive electronics, digital energy and other tracks based on the company's original CT business as a breakthrough, along the market or customer's advantageous areas for strategic expansion, the company's basic requirement is to achieve an annual compound growth rate of more than 40%.

The operator business segment benefits from global 5G construction and Gigabit broadband deployment, and is expected to grow steadily.

The company's market share in global operator equipment has steadily increased, the global 5G construction continues to advance, the domestic operators' gigabit broadband deployment accelerates, and policies such as East And West Computing drive data center networks and transmission networks continue to upgrade and expand, which will drive the long-term and stable growth of the company's operators' first growth curve. From the perspective of the development law of the industrial chain, the deployment of a new generation of network scale continues to advance, the gross profit margin of the main equipment is expected to continue to increase, and the profitability of the company's operator business sector is expected to continue to strengthen, becoming a ballast stone for performance growth.

There are many points of interest in government, enterprise and consumer businesses, and the long-term growth of ICT demand driven by the development of the digital economy is expected to accelerate the growth of the second growth curve.

The company has been laying out government, enterprise and consumer business for many years, forming a perfect product matrix, and achieving remarkable results in channel construction. The company focuses on servers and storage, terminals (including smart home terminals), 5G industry applications, automotive electronics and other advantages with broad growth space. Among them, the company's servers and storage in recent important collection projects have obtained a good share; consumer terminal business continues to increase; 5G industry applications are rapidly landed, and there are broad prospects for development in the fields of industrial digitalization and industrial Internet; automotive electronic product lines have been accumulated for many years, and the automotive electronics team has been positioned as "digital automobile basic capability provider and domestic independent high-performance partner", with automotive SOC chips, automotive operating systems, etc. as the entry point, and growing together with industry partners. The company has improved its layout from many aspects such as product layout, organizational structure, and channel construction, and looks forward to the continuous acceleration of the second growth curve in the future.

Investment advice and profit forecasts

2022 is the opening year of the company's strategic transcendence period, the company 1) operators market competitiveness is outstanding, the global share is expected to increase steadily; 2) government and enterprise affairs to increase IT, 5G industry applications, automotive electronics and other expansion, to create a second growth curve; 3) consumer business brand, channel and product construction has achieved remarkable results. Under the absolute growth of revenue and gross profit, the cost is rigid, the scale effect is expected to continue to appear, and the operating profit is expected to continue to grow rapidly. The risk of external sanctions has been gradually lifted, the current company is in the historical valuation of the low range, it is expected that the company's net profit attributable to the mother in 22-24 years will be 90, 110, 12.8 billion yuan, corresponding to 12 times in 22 years and 10 times the price-earnings ratio in 23 years. Comparable companies have an average 22-year price-to-earnings ratio of 19 times. Referring to the company's historical median price-to-earnings ratio of 25 times, and according to PEG=1, the company's reasonable valuation in 22 years is 23 times the price-earnings ratio, we cautiously expect the company's reasonable price-to-earnings ratio of 22 years to be 20 times, corresponding to a target price of 38.04 yuan / share, and reiterate the "buy" rating.

Risk warning: operational compliance risks, slower than expected progress in government and enterprise affairs, lower than expected 5G construction, escalation of Sino-US trade frictions, risk of declining gross profit margins of operators' businesses, and risks of valuation assumptions

According to the research report data released in the past three years, the Research Center of Securities Star Data Center calculated that the Pacific Li Renbo researcher team studied the stock more deeply, with the average forecast accuracy of the past three years being 78.82%, and its forecast for the net profit attributable to the 2022 year was 8.848 billion yuan, and the forecast PE converted according to the current price was 12.25.

The latest profit forecast breakdown is as follows:

A total of 26 institutions have given ratings, 21 buy ratings and 5 overweight ratings in the last 90 days; the average target price of institutions in the past 90 days has been 38.6. The Securities Star Valuation Analysis Tool shows that ZTE (000063) has a good company rating of 2.5 stars, a good price rating of 2.5 stars, and a valuation composite rating of 2.5 stars. (Rating Range: 1 ~ 5 stars, maximum 5 stars)

The above content is compiled by Securities Star based on public information, if you have any questions, please contact us.