ZTE (000063): Focusing on Steady Development of 5G Main Channel

ZTE (000063): Focusing on Steady Development of 5G Main Channel

Event: ZTE announced its 2018 annual report, with total revenue of $ 85.5 billion, every 21.

4%; of which, the operator’s network business income is 57.1 billion US dollars, which is extended by 10 every year.

5%, better than expected; net profit attributable to mother is 69.

800 million US dollars, which is basically a 1 billion US dollar banknote. During the “chip embargo” business stagnation, provision for impairment of long-term equity investment in Nubia10.

9.4 billion.

The company also announced that the net profit in the first quarter of 2019 was 800 million to 1.2 billion, in line with our expectations, indicating that the company’s operating status has completely returned to normal.

In 2019, operators’ capital expenditure expansion has transformed for three consecutive years, achieving about 5.

Positive growth of 6%.

Recently, the three major operators announced their capital expenditure plans for 2019, totaling approximately 3031 trillion, with a long-term growth of 5.

6%, to reverse the drift situation for three consecutive years.

Among them, the increase in wireless side spending.

Since the second quarter of 2018, the mobile traffic of mobile users across the country has exploded. It is estimated that the per capita mobile traffic of 4G users in the first quarter of 2019 is more than three times that of the same period in 2018.

The explosion of mobile traffic has led to a sharp increase in the pressure on 4G networks. However, the current 5G network is “far away from water to quench the thirst.” 4G network construction in 2019 has exceeded expectations. China Unicom ‘s bidding for mobile 4G base stations and antennas has exceededmarket expectation.

At the same time, it is expected that 5G spending in 2019 will reach 34 billion U.S. dollars, and the construction of 80,000 to 120,000 base stations for 5G base stations will become 天津夜网 the core driving force for lateral wireless growth in the second half of the year.

We expect that the operator’s spending on the wireless side in 2019 is expected to grow by 15-20% per year.

This provides strong support for ZTE’s 2019 performance.

5G investment and construction will be application-driven and gradually developed.

Some investors believe that 5G is like 3G / 4G. Once the operator obtains license distribution again, it will be “2-3”, and then it will enter the trend.

We believe that 5G investment will be application-driven. Because applications and business models in the 5G era are not clearly presented, network construction, terminals, and applications need to be developed in coordination, so 5G is destined to be a gradual process.

Therefore, we believe that the prosperity of 5G will continue to be relatively long, and ZTE will focus on the main channel of 5G, and the company’s continuous improvement of its business will also be relatively strong.

Focus on the 5G main channel.

ZTE has carried out 5G cooperation with 30 operators around the world, distributed 10,000 large-scale MIMO base stations, and NFV has more than 400 commercial and PoC cases worldwide. In the common core, the core network, end-to-end network slicing, edge computing and other technological innovations andThe application is in a leading position; ZTE’s self-developed core chips such as baseband and IF remain leading in performance, integration, and performance, ensuring product performance and large-scale commercial capabilities.

In the field of 5G industry applications, joint operators and partners carry out 5G business innovation demonstrations in vertical industries such as big video, Internet of Vehicles, Industrial Internet, and smart grid, strengthen strategic cooperation with key vertical industry partners, and jointly promote research and development of 5G industry applications.Development.

Profit forecast: Overall, 4G beyond expectations is the core driving force for ZTE’s performance growth in 2019, and the expansion of 5G construction scale in 2020 will continue to drive ZTE’s performance growth.

We forecast ZTE’s net profit for 2019-2021.

900 million, 58.

600 million, 73.

9 trillion, corresponding to the closing price and market value on March 27, 2019, PE is 26 times, 19 times, and 15 times respectively, maintaining the “prudent increase” rating.

Risk reminders: Domestic equipment vendors are hindered from expanding overseas markets, and greater internal market competition; 5G network construction expansion is stronger than expected; trade wars are intensified or technology is blocked.